Inc manufactures and sells many different Travel Accessory i

Inc, manufactures and sells many different Travel Accessory items, including uitcase product. The company has had losses with this Carry On Suitcase two years and is considering discontinuing the product. Please refer to the Question 8 Roll & Stow its Carry mar On S ollown contribution margin income statement: Roll & Stow Inc. Income Statement Carry On Suitcase only For the Year Ended December 31, 2017 Sales Variable Expenses: $630,000 Variable manufacturing expenses $ 385,000 75,000 12,000 Sales commissions Shipping Total Variable Expenses 472,000 158,000 Contribution Margin Fixed Expenses: Salary of product-line manager 85,000 127,000 General factory overhead Depreciation of special equipment (no resale value) 52,000 110,000 15,000 50,000 Advertising-traceable Insurance on inventories Purchasing department Total Fixed Expenses 439,000 Net operating Loss $ (281,000) NOTES Purchasing Department is allocated on the basis of sales dollars. Discontinuing the sales of the Carry On Suitcase would not affect the company\'s sales of its other product lines, or its total purchasing department expenses. The product-line manager will be transferred to another position and earn the same salary. General factor overhead will be reduced by 40%. Question: What will be the impact on Roll & Stow\'s income be if the company discontinues the manufacture and sale of its Carry On Suitcase?

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Sales               630,000.00 Less Variable Expenses :   Variable Manufacturing expenses               385,000.00 Sales commissions                 75,000.00 Shipping                 12,000.00 Total variable expenses               472,000.00 Contribution Margin               158,000.00 Fixed cost :   Salary of product line manager                                  -   General factory overhead = 127000*40%                 50,800.00 Deprecitaion of special equipment                                -   Advertising               110,000.00 Insurance on inventories                 15,000.00 Purchasing deptt expenses                                -   Total fixed costs               175,800.00 Net operating income (Loss)               (17,800.00) If it discontinues carry on suitcase then its income will reduce by $17,800 Note - purchasing deptt expenses and product line manager salary will continued in the same way whether carry on suitcase is manufactured or not. Thus ignored There is no value of special equipment…. Thus nil depreciation General Factory overhead is relevant to the extent of 40%