ACC – Mr. Earl Pearl, accountant for Margie Knall, Inc.

Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepared the following product-line income data:PRODUCTTotal A B CSales…………………………………………$ 100,000……..$50,000………$20,000………..$30,000Variable expenses………………………… 60,000……….30,000…………10,000………….20,000Contribution margin……………………….. .40,000……….20,000…………10,000………….10,000Fixed expenses:Rent…………………………………………. .5,000………..2,500…………..1,000……………1,500Depreciation………………………………. 6,000………..3,000…………..1,200…………….1,800Utilities………………………………………4,000………..2,000……………..500…………….1,500Supervisors’ salaries………………….. 5,000………. 1,500……………..500…………….3,000Maintenance………………………………3,000………..1,500………………600………………900Administrative expenses……………. 10,000………..3,000……………..2,000…………..5,000Total fixed expenses…………………… 33,000……….13,500……………5,800………….13,700Net operating income…………………… $7,000……….$6,500………….$4,200…………($3,700)The additional information below is available.The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.The company’s total depreciation would not be affected by dropping C.Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.All supervisors’ salaries are avoidable.If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000.Required: Prepare an analysis showing whether Product C should be eliminated. Articulate your findings.

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