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       $ 430,000   Variable expenses:             Variable manufacturing expenses $ 123,000         Sales commissions   46,000         Shipping   22,000         Total variable expenses         191,000   Contribution margin         239,000   Fixed expenses:             Advertising (for the bilge pump product line)   20,000         Depreciation of equipment (no resale value)   117,000         General factory overhead   48,000 *       Salary of product-line manager   125,000         Insurance on inventories   10,000         Purchasing department   54,000 †       Total fixed expenses         374,000   Net operating loss       $ (135,000 )   *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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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       $ 430,000  
Variable expenses:            
Variable manufacturing expenses $ 123,000        
Sales commissions   46,000        
Shipping   22,000        
Total variable expenses         191,000  
Contribution margin         239,000  
Fixed expenses:            
Advertising (for the bilge pump product line)   20,000        
Depreciation of equipment (no resale value)   117,000        
General factory overhead   48,000 *      
Salary of product-line manager   125,000        
Insurance on inventories   10,000        
Purchasing department   54,000      
Total fixed expenses         374,000  
Net operating loss       $ (135,000 )
 

*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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