Top Managers of Computer Manufacturing Are Alarmed by Their Operating

question 3

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 Manufarturing
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:

Critical Value

A threshold in hypothesis testing that defines the boundary or cutoff for deciding whether to reject the null hypothesis.

Null Hypothesis

A statistical hypothesis that suggests there is no effect or no difference, and it serves as the default position that there is no association between two measured phenomena.

One-way ANOVA

A statistical method used to compare the means of three or more independent groups to determine if there is a statistically significant difference among them.

F-ratio

The F-ratio is a statistic used in analysis of variance (ANOVA) to compare the variability between groups to the variability within groups, assessing whether group means are significantly different.