Top Managers of Technowares Manufacturing Are Alarmed by Their Operating $31,20 \times \times$

question 141

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

Elastic Portion

The segment of a demand or supply curve where a change in price leads to a more than proportional change in quantity demanded or supplied.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit changes as production levels change.

MR Curve

Stands for Marginal Revenue Curve, which shows how the revenue changes with the sale of one additional unit of a product.

Profit-Maximizing

The approach a company takes to determine the most profitable pricing and output combination.