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 $ 500,000 Variable expenses: Variable manufacturing expenses $ 132,000 Sales commissions 53,000 Shipping 21,000 Total variable expenses 206,000 Contribution margin 294,000 Fixed expenses: Advertising (for the bilge pump product line) 28,000 Depreciation of equipment (no resale value) 103,000 General factory overhead 35,000 * Salary of product-line manager 117,000 Insurance on inventories 10,000 Purchasing department 41,000 † Total fixed expenses 334,000 Net operating loss $ (40,000 ) *Common costs allocated on the basis of machine-hours. †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 company’s total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | $ | 500,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 132,000 | ||||
| Sales commissions | 53,000 | |||||
| Shipping | 21,000 | |||||
| Total variable expenses | 206,000 | |||||
| Contribution margin | 294,000 | |||||
| Fixed expenses: | ||||||
| Advertising (for the bilge pump product line) | 28,000 | |||||
| Depreciation of equipment (no resale value) | 103,000 | |||||
| General factory |
35,000 | * | ||||
| Salary of product-line manager | 117,000 | |||||
| Insurance on inventories | 10,000 | |||||
| Purchasing department | 41,000 | † | ||||
| Total fixed expenses | 334,000 | |||||
| Net operating loss | $ | (40,000 | ) | |||
*Common costs allocated on the basis of machine-hours.
†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 company’s total general factory overhead or total Purchasing Department expenses.
Required:
What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
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