Top Managers of Technowares Manufacturing Are Alarmed by Their Operating

question 49

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.
Technowares Mantufacturing
Income Statement
For the Year Ended December 31,20XX $\begin{array}{lrrr}&\text { Total}&\text { Laptop}&\text { Desktop }\\\text { Sales Revenue } & \$ 930,000 & \$ 575,000 & \$ 355,000 \\\text { Variable Costs } & \underline{507,000} & \underline{267,000} & \underline{240,000} \\\text { Contribution Margin } & 423,000 & 308,000 & 115,000\\\text { Fixed Costs: }\\\text { Manufacturing } & 375,000 & 225,000 & 150,000 \\\text { Selling and Administrative } & \underline{62,000} & \underline{45,000} & \underline{17,000} \\\text { Total Fixed Costs } & \underline{437,000} & \underline{270,000} & \underline{167,000} \\\text { Operating Income (Loss) } & \underline{\underline{\$(14,000}} & \underline{\underline{\$ 38,000}} & \underline{\underline{\$(52,000}}\end{array}$ 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.

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Definitions:

Return on Investment

A financial metric used to measure the likelihood of gaining a return from an investment. It is the ratio of net profit to cost of investment.

Situation Analysis

The process of evaluating the current status of a company or project to identify strengths, weaknesses, opportunities, and threats (SWOT).

Stewardship Considerations

Involves responsible planning and management of resources, ensuring they are used ethically and sustainably.

Ongoing Relationship

A continuous interaction or connection between individuals or entities that evolves over time.