Top Managers of Technowares Manufacturing Are Alarmed by Their Operating $$\text{Technowares Manufacturing}\\\text{Income Statement}\\\text{For the Year Ended December 31, 20XX}\\$$

question 85

Essay

Top managers of Technowares Manufacturing are alarmed by their operating losses.They are considering dropping the desktop product line.The company accountants have prepared the following analysis to help make this decision.
$$\text{Technowares Manufacturing}\\\text{Income Statement}\\\text{For the Year Ended December 31, 20XX}\\$$
$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\begin{array}{lccc} & \text { Total } & \text { Laptop } & \text { Desktop } \\\text { Sales Revenue } & \$ 930,000 & \$ 575,000 & \$ 355,000 \\\text { Variable Costs } & \underline{507,000} & \underline{267,000} & \underline{240,000} \\\text { Contribution Margin } & 423,000 & 308,000 & 115,000\end{array}$
$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\text {Fixed Costs: }$
$~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\begin{array}{lrrr}\text { Manufacturing } & 375,000 & 225,000 & 150,000 \\\text { Selling and Administrative } & \underline{62,000} & \underline{45,000} & \underline{17,000} \\\text { Total Fixed Costs } & \underline{437,000} & \underline{270,000} & \underline{167,000} \\\text { Operating Income (Loss) } & \underline{\underline{\$(14,000)}} & \underline{\underline{\$ 38,000}} & \underline{\underline{\$(52,000)}}\end{array}$
Total fixed manufacturing costs will not change if the company stops selling the desktop product line. The fixed selling and administrative costs, however, will be avoided.
Prepare a differential analysis to show whether Technowares Manufacturing should drop the desktop product line. Should the desktop product line be dropped? Explain your answer.