Dexter Products, Inc - increase or decrease of net operating income
Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement: |
| Dexter Products, Inc. Income Statement—Overnight Cases For the Quarter Ended June 30 | ||||||
| Sales | $ | 450,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 130,000 | ||||
| Sales commissions | 48,000 | |||||
| Shipping | 12,000 | |||||
| Total variable expenses | 190,000 | |||||
| Contribution margin | 260,000 | |||||
| Fixed expenses: | ||||||
| Salary of product-line manager | 21,000 | |||||
| General factory overhead | 104,000 | * | ||||
| Depreciation of equipment (no resale value) | 36,000 | |||||
| Advertising—traceable | 110,000 | |||||
| Insurance on inventories | 9,000 | |||||
| Purchasing department | 50,000 | † | ||||
| Total fixed expenses | 330,000 | |||||
| Net operating loss | $ | (70,000 | ) | |||
| *Allocated on the basis of machine-hours. |
| †Allocated on the basis of sales dollars. |
Discontinuing the overnight cases would not affect the company’s sales of its other product lines, its total general factory overhead, or its total purchasing department expenses. |
| Required | |||
| a. | Compute the increase or decrease of net operating income if the overnight case are continued or discontinued. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign. Omit the "$" sign in your response.)
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13 years ago
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