HiTech manufactures two products: Regular and Super. The results of operations for 20x1 follow. Fixed manufacturing costs
Question:
HiTech manufactures two products: Regular and Super. The results of operations for 20x1 follow.
Fixed manufacturing costs included in cost of goods sold amount to $30,000 for Regular and $74,000 for Super the remaining cost of goods sold is variable manufacturing costs. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; the remaining selling expenses are fixed cost.
Required:
1. If HiTech eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super, what would be the new operating income for the company? Prepare a new income statement below. Hint: Since the company is moving capacity over to Super the fixed costs incurred for the Regular product will shift to the Super product. Make sure you show your work.
Super | |
Units | |
Sales | |
Less: Cost of goods sold | |
Gross margin | |
Less: Selling Expense | |
Operating income |
2. Should the company eliminate the Regular product? Why?