Thalassines Kataskeves SA of Greece makes marine equipment T

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 $430, 08e Sales Variable expenses: Variable manufacturing expenses Sales commissions Shipping $ 136, e00 49,000 23, 000 Total variable expenses Contribution margin Fixed expenses 208, 000 222, 000 Advertising (for the bilge pump product line) Deprecjation of equipment (no resale value) General factory overhead Salary of product-line manager 27, 000 107, 006 34, 000 113, 006 12, 000 se, 0e0t Insurance on inventories Purchasing department Total fixed expenses Net operating loss 343, 00 s (121, 000) Common costs allocated on the basis of machine-hours t 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 companys total general factory overhead or total Purchasing Department expenses.

Solution

Statement showing Financial Advantage or (Disadvantage) of Discontinuing a product line

Sales

430000

Variable expenses

         Variable Manufacturing Expenses

136000

         Sales Commission

49000

         Shipping

23000

208000

Contribution

$ 222,000.00

Avoidable Fixed Expenses

Advertisement Expenses

$    27,000.00

Salary of Product line Manager

$ 113,000.00

Insurance on Inventories

$    12,000.00

Total Avoidable Fixed Cost

$ 152,000.00

Net Benefit

$    70,000.00

Financial Disadvantage on Discontinuing Bilge Pump Product Line would be $ 70000.00.

Financial Disadvantage

$    70,000.00

Notes:

1) Unavoidable Fixed Cost will not be considered because they will occur even if no production is done.

2) Depreciation is not considered since equipment has zero salvage value and depreciation is a non cash expense.

3) Similarly General factory overheads and Purchasing department expenses will continue to occur at same level that is why they are also excluded from calculation

Statement showing Financial Advantage or (Disadvantage) of Discontinuing a product line
Sales		430000
Variable expenses
Variable Manufacturing Expenses	136000
Sales Commission	49000
Shipping	23000	208000
Contribution		$ 222,000.00
Avoidable Fixed Expenses
Advertisement Expenses	$    27,000.00
Salary of Product line Manager	$ 113,000.00
Insurance on Inventories	$    12,000.00
Total Avoidable Fixed Cost		$ 152,000.00
Net Benefit		$    70,000.00