The Management Accountant for the Chocolate S'more Company Has Prepared

question 175

Essay

The management accountant for the Chocolate S'more Company has prepared the following income statement for the most current year:
$\begin{array}{lrrrr}&\text { Chocolate }&\text { other Candy }&\text { Fudge }&\text { Total }\\\text { Sales } & \$ 40,000 & \$ 25,000 & \$ 35,000 & \$ 100,000 \\\text { Cost of goods sold } & 26,000 & 15,000 & 19,000 & 60,000 \\\text { Contribution margin } & 14,000 & 10,000 & 16,000 & 40,000 \\\text { Delivery and ordering costs } & 2,000 & 3,000 & 2,000 & 7,000\\\text { Rent (per sq. foot used) } & 3,000 & 3,000 & 2,000 & 8,000 \\\text { Allocated corporate costs } & 5,000 & 5,000 & 5,000 & 15,000 \\\text { Corporate profit } & \$ 4,000 & \$(1,000) & \$ 7,000 & \$ 10,000\end{array}$ a.Do you recommend discontinuing the Other Candy product line? Why or why not?
b.If the Chocolate product line had been discontinued,corporate profits for the current year would have decreased by what amount?

---

Definitions:

Intragroup Transfer

Transactions between companies that are part of the same corporate group, such as the sale of goods or services, transfer of assets, or sharing of resources.

Inventories

Quantifiable goods or materials held by a company for the purpose of sale in the ordinary course of business, production, or use in creating goods and services.

Depreciable Asset

An asset that decreases in value over time due to use, wear and tear, or obsolescence and can be written off against income.

Useful Life

The estimated period over which an asset is expected to be usable by an entity, or the number of production or similar units expected to be obtained from the asset by an entity.