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.

Evaluate the efficiency of market outcomes versus outcomes with government intervention.

Recognize the role of government in addressing market failures and the potential consequences of such interventions.

Analyze the impact of price floors on market quantities sold and surplus.

Assess the cost and impact of government purchase programs on markets.

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