Reference no: EM132602950
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
Thalassines Kataskeves, S.A.
Income Statement-Bilge Pump
For the Quarter Ended March 31
Sales $850,000
Variable expenses:
Variable manufacturing expenses$330,000
Sales commissions 42,000
Shipping 18,000
Total variable expenses 390,000
Contribution margin 460,000
Fixed expenses:
Advertising (for the bilge pump product line) 270,000
Depreciation of equipment (no resale value) 80,000
General factory overhead 105,000
Salary of product-line manager 32,000
Insurance on inventories 8,000
Purchasing department 45,000
Total fixed expenses 540,000
Net operating loss $(80,000)
- Common costs allocated on the basis of machine-hours.
- Common costs allocated on the basis of sales dollars.
- Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses.
Required:
Question 1: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?