The Following Product Line Information Is for the Swiss Watch

question 11

Essay

The following product line information is for the Swiss Watch Company.The company is considering dropping its Children's product line due to poor operating income performance.Fixed expenses are allocated to each product line based on sales revenue.
$\begin{array}{lrr}&&\text { Watch Products }\\&\text { Men's}&\text { Women's }&\text {Children's }\\ \text {Sales } &\$30,000&\$50,000&\$40,000\\ \text { Variable expenses} &10,000&15,000&25,000\\ \text { Fixed expenses } &\underline{15,000}&\underline{25,000}&\underline{20,000}\\ \text { Operating income } &\underline{\$5,000}&\underline{\$10,000}&\underline{\$(5,000)}\\\end{array}$
(a.)Calculate the effect on the Swiss Company's operating income if the Children's watch product line is discontinued.Comment on your analysis.
(b.)Assume that Swiss Company discontinues its Children's product line.Calculate the total operating income for the Swiss Company.

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Definitions:

Rights Offerings

A corporate approach to raising capital by giving existing shareholders the opportunity to buy additional shares directly from the company at a predetermined price, usually at a discount.