Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below: WILLIAMS PRODUCTS INC. Income Statement—School Knapsacks For the Quarter Ended June 30 Sales $ 300,000 Variable expenses: Variable manufacturing expenses $ 84,000 Sales commissions 33,000 Shipping 9,000 Total variable expenses 126,000 Contribution margin 174,000 Fixed expenses: Salary of product-line manager 11,750 General factory overhead 59,950 * Depreciation of equipment (no resale value) 23,000 Advertising—traceable 54,650 Insurance on inventories 5,000 Purchasing department 34,600 † Total fixed expenses 188,950 Operating loss $ (14,950 ) *Allocated on the basis of machine-hours. †Allocated on the basis of sales dollars. Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company’s total general factory overhead or total purchasing department expenses. a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.) b. Would you recommend that the Williams Products Inc line be discontinued? Yes No

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:

WILLIAMS PRODUCTS INC.
Income Statement—School Knapsacks
For the Quarter Ended June 30
Sales				$	300,000
Variable expenses:
Variable manufacturing expenses	$	84,000
Sales commissions		33,000
Shipping		9,000
Total variable expenses					126,000
Contribution margin					174,000
Fixed expenses:
Salary of product-line manager		11,750
General factory overhead		59,950	*
Depreciation of equipment (no resale value)		23,000
Advertising—traceable		54,650
Insurance on inventories		5,000
Purchasing department		34,600	^†
Total fixed expenses					188,950
Operating loss				$	(14,950	)

*Allocated on the basis of machine-hours.
^†Allocated on the basis of sales dollars.

Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company’s total general factory overhead or total purchasing department expenses.

a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.)

b. Would you recommend that the Williams Products Inc line be discontinued?

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