Ginger Company makes three types of microwave ovens. Basic is the small 0.7 cubic foot model sold
Question:
Ginger Company makes three types of microwave ovens. Basic is the small 0.7 cubic foot model sold at discount stores. Countertop is a larger (1.2 cubic foot) model with more advanced features. Built-in is a model designed to fit into cabinetry and is sold through appliance stores. A segmented income statement is shown below.
Basic | Countertop | Built-In | Total | |
---|---|---|---|---|
Sales | $203,920 | $864,930 | $735,170 | $1,804,020 |
Variable COGS | 184,360 | 301,780 | 351,990 | 838,130 |
Commissions | 5,830 | 44,125 | 36,065 | 86,020 |
Contribution margin | $13,730 | $519,025 | $347,115 | $879,870 |
Separable fixed expense | 29,085 | 75,715 | 175,630 | 280,430 |
Segment margin | $(15,355) | $443,310 | $171,485 | $599,440 |
Common fixed expenses: | ||||
Factory overhead | 216,890 | |||
Selling and administrative expense | 290,570 | |||
Operating income | $91,980 |
Ginger Company believes the basic model is a concern and is considering a number of options to deal with this situation. One possibility is to drop the Basic line. If that is done, operating income will be $**BLANK** higher
After further study, Ginger Company has found that if the Basic Model is dropped, sales of the Countertop model will decrease by 5 percent as some stores prefer to order only from a company with both basic and countertop models. Now if the Basic line is dropped, operating income will be $**BLANK**lower than if the Basic line is kept. (round to nearest dollar).
Mathematical Applications for the Management Life and Social Sciences
ISBN: 978-1305108042
11th edition
Authors: Ronald J. Harshbarger, James J. Reynolds