Chapter 26, Problem 1CPP on Chegg study workbook solutions for Horngren's Managerial Accounting (12th Edition)...
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Accounting
Chapter 26, Problem 1CPP on Chegg study workbook solutions for Horngren's Managerial Accounting (12th Edition)
Part 2.
The division manager of Division B received the following operating income data for the past year:
DIVISION B OF DILLARD, INC
Income Statement
For the Year Ended DEC 31, 2018
Product
Line
T205
B179
Total
Net Sales Revenue
$310,000
$360,000
$670,000
Costs of Goods Sold:
Variable
31,000
44,000
75,000
Fixed
275,000
67,000
342,000
Total Cost of Goods Sold
306,000
111,000
417,000
Gross Profit
4,000
249,000
253,000
Selling and Admin. Expenses
Variable
68,000
80,000
148,000
Fixed
47,000
27,000
74,000
Total Selling and Admin. Expenses
115,000
107,000
222,000
Operating Income (Loss)
$(111,000)
$142,000
$ 31,000
The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $75,000 and decrease fixed selling and administrative expenses by $10,000.
So I need to figure out
A: Prepare a differential analysis to show whether Division B should drop the T205 product line.
B: What is your recommendation to the manager of Division B?
Answer & Explanation
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