When MrDing L *These Traceable Expenses Could Be Eliminated If the Product Lines

question 80

Essay

When Mr.Ding L.Berry,president and chief executive of Berry,Inc.,first saw the segmented income statement below,he flew into his usual rage: "When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!"

$\begin{array}{lcccc}\begin{array}{l}\\\text { Sales }\\\text { Variable expenses }\\\text { Contribution margin } \\\text { Traceable fixed expenses* } \\\text { Common expenses, allocated } \\\text { Operating income (loss) } \end{array}\begin{array}{l}\underline { \text { Total } }\\\$ 250,000\\119,000\\131,000\\=98,000\\32,900\\\$ 100\end{array}\begin{array}{c}\underline { \mathrm { U } } \\\$ 100,000 \\37,500\\63,000\\31,000 \\\$ 18,000 \\\$ 14,000\end{array}\begin{array}{c}\underline { \mathrm { V } }\\\$ 75,000 \\35,000 \\ 40,000 \\37,000 \\10,500 \\\$(7,500)\end{array}\begin{array}{c} \underline { \mathrm { W } } \\\$ 75,000 \\47,000\\28,000 \\30,000 \\\$ 4,400 \\\$(6,400)\end{array}\end{array}$

*These traceable expenses could be eliminated if the product lines to which they are traced were discontinued.

Required:

Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer.

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Definitions:

Reality

The state of things as they actually exist, as opposed to an idealistic or notional idea of them.

Perception

The way in which something is regarded, understood, or interpreted by the mind.

Multiple Causality

The concept that an event or phenomenon can be caused by more than one factor or reason.

Past Experience

Previous events or interactions that influence an individual's beliefs, behaviors, and attitudes.