Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencinglosses on its bilge pump product line for several years. The most recent quarterly contribution formatincome statement for the bilge pump product line follows:Thalassines Kataskeves, S.A.Income Statement—Bilge PumpFor the Quarter Ended March 31Sales ................................................................................................. €850,000Variable expenses:Variable manufacturing expenses ................................................. €330,000Sales commissions ....................................................................... 42,000Shipping ........................................................................................ 18,000Total variable expenses .................................................................... 390,000Contribution margin .......................................................................... 460,000Fixed expenses:Advertising .................................................................................... 270,000Depreciation of equipment (no resale value) ................................ 80,000General factory overhead ............................................................. 105,000*Salary of product-line manager ..................................................... 32,000Insurance on inventories ............................................................... 8,000Purchasing department ................................................................. 45,000†Total fixed expenses ......................................................................... 540,000Net operating loss ............................................................................. € (80,000)*Common costs allocated on the basis of machine-hours.†Common costs allocated on the basis of sales dollars.The currency in Greece is the euro, denoted above by €. Discontinuing the bilge pump product linewould not affect sales of other product lines and would have no effect on the company’s total generalfactory overhead or total Purchasing Department expenses.Required:Would you recommend that the bilge pump product line be discontinued? Support your answer withappropriate computations.
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 .................................................................................... 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.
The currency in Greece is the euro, denoted above by €. 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:
Would you recommend that the bilge pump product line be discontinued? Support your answer with
appropriate computations.
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