Top Managers of Computer Manufacturing Are Alarmed by Their Operating $20XX$

question 134

Essay

Top managers of Computer 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.
Computer Manufacturing
Income Statement
For the Year Ended December 31, $20XX$ $$\begin{array} { l r r r } & { \text { Total } } & { \text { Laptop } } & \text { Desktop } \\\text { Sales Revenue } & \$ 930,000 & \$ 575,000 & \$ 355,000 \\\text { Variable Costs } & \underline { 507,000 } & \underline { 267,000 } & \underline { 240,000 } \\\text { Contribution Margin } & 423,000 & 308,000 & 115,000 \\\text { Fixed Costs: } & & & \\\quad \text { Manufacturing } & 375,000 & 225,000 & 150,000 \\\quad \text { Selling and Administrative } & 62,000 & 45,000 & 17,000 \\\text { Total Fixed Costs } & \underline { 437,000 } & \underline { 270,000 } & \underline { 167,000 } \\\text { Operating Income (Loss) } & \underline { \underline { \$ ( 14,000 } } & \underline { \underline { \$ 38,000 } } & \underline { \underline { \$ ( 52,000 ) } }\end{array}$$ 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 Computer Manufacturing should drop the desktop product line.Should the desktop product line be dropped? Explain your answer.

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Definitions:

Bank Statement

A monthly summary provided by a bank, detailing all transactions in a customer's account.

Interest

The cost of using borrowed money or the return on investment for savings and investments, usually expressed as a percentage.

Adjusted Cash Balance

The cash balance as per the company's records after making necessary adjustments for reconciling items with the bank statement.

Bank Statement

A document summarizing the financial transactions occurring within a specific period on a bank account.