The Arielle Company Reported the Following Results for the Manufacture

question 133

Essay

The Arielle Company reported the following results for the manufacture and sale of one of its products known as Controllers during the most recent year.
$$\begin{array} { | l | r | } \hline \text { Sales } ( 6,500 \text { Controllers at } \$ 130 \text { each) } & \$ 845,000 \\\hline \text { Cost of sales } & 390,000 \\\hline \text { Distribution costs } & 65,000 \\\hline \text { Advertising ex pense } & 275,000 \\\hline \text { Salaries } & 25,000 \\\hline \text { Building costs } & \underline{145,000 }\\\hline \text { Operating loss } &\underline{ ( \$ 55,0000) }\\\hline\end{array}$$
The Arielle Company is trying to determine whether or not to discontinue the manufacture and sale of Controllers.The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped.The building costs represent the costs of production facilities and equipment that the Controllers product shares with other products produced by Arielle.If the Controllers product were dropped,there would be no change in the building costs of the company.Management has determined that discontinuing the manufacture and sale of Controllers will have no effect on the company's other product lines.Determine the change in operating profits that will happen if the manufacture and sale of Controllers is discontinued.

---

Definitions:

Nonconforming Goods

Products delivered under a sales contract that fail to meet quality, specification, or performance requirements.

Substantially Impaired

A situation where the value, function, or utility of something has been significantly reduced or damaged.

Conform to the Contract

The requirement for the goods, services, or conditions provided or received to meet the specifications, quality, and terms outlined in a contractual agreement.

Commercial Unit

A term used in sales law referring to a standard or unit of goods that is regarded as a single whole for purposes of sale and division.