Capital Toys management is considering eliminating product A, which has been showing a loss for several years.

Question:

Capital Toys’ management is considering eliminating product A, which has been showing a loss for several years. The company’s annual income statement, in S000s, is as follows:


Required

a. Restate the income statement in segment margin format.

b. What would be the effect on income if product A were dropped?

c. Management is considering making a new product using product A’s equipment. If the new product’s selling price per unit were $12, its variable costs were $8, and its advertising costs were the same as for product A, how many units of the new product would the company have to sell to make the switch from product A to the new product worthwhile?

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Managerial Accounting

ISBN: 9781119577669

4th Edition

Authors: Charles E. Davis, Elizabeth Davis

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