The Data Given Below Is Taken from the Budgeted Income

question 19

Essay

The data given below is taken from the budgeted income statement of the Arrow Corporation for 2013. It shows the projected net income or loss for each of the firm's three products. Management is concerned about the budgeted loss for Product C and wants to discontinue it. Prepare an analysis indicating the effects of discontinuing Product C. Based on the analysis, indicate the decision that should be made.
$\begin{array}{c}\begin{array}{lr}& \text { Product A }\\\text { Sales }&\underline{ \$ 35,000} \\\text { Cost of Goods Sold } & \\\text { Direct Materials } &\$5,000 \\\text { Direct Labor } & \$ 7,000 \\\text { Mfg. Overhead } & \underline{3,500} \\\text { Total } &\underline{ \$ 15,500 }\\\text { Gross Profit on Sales } & \$ 19,500 \\\text { Operating Expenses } & \underline{13,000} \\\text { Net Income or (Loss) } &\underline{ \$ 6,500}\end{array}\begin{array}{c}\text { Product B}\\ \underline{ \$ 90,000 }\\\\\$ 11,000 \\16,000\\ \underline{8,000}\\ \underline{\$ 35,000} \\ \$ 55,000 \\ \underline{24,000}\\ \underline{\$ 31,000} \end{array}\begin{array}{c}\text { Product C}\\ \underline{ \$ 20,000 }\\\\\$ 4,000 \\6,000\\ \underline{3,000}\\ \underline{\$ 13,000} \\ \$ 7,000 \\ \underline{10,000}\\ \underline{(\$ 3,000)} \end{array}\begin{array}{c}\text { Total}\\ \underline{ \$ 145,000 }\\\\\$ 20,000 \\29,000\\ \underline{14,500}\\ \underline{\$ 63,500} \\ \$ 81,500 \\ \underline{47,000}\\ \underline{(\$ 34,500)} \end{array}\end{array}$ Additional information:
(a.) Materials and labor are variable costs.
(b.) Total manufacturing overhead is applied at 50 percent of the direct labor costs.
(c.) Variable overhead is 10 percent of the direct labor costs.
(d.) Fixed overhead totals $11,600 a year.
(e.) Operating expenses include variable costs at 20 percent of sales dollars.
(f.) Fixed operating expenses total $18,000.
(g.) Fixed overhead costs and fixed operating expenses are expected to continue if Product C is eliminated.

---

Definitions:

Correlational Research

A type of non-experimental research method in which a researcher measures two variables, understands and assesses the statistical relationship between them without influencing them.

Deprived

Experiencing a lack of basic material benefits considered to be essential for human well-being, such as food, warmth, and shelter.

Perceptual Skills

The ability to see, hear, or become aware of something through the senses, including the interpretation of sensory information to understand the environment.

Developmental Psychologist

A specialist in psychology who studies the growth and development of the human mind and behavior across the lifespan.