PROBLEM 8–1 Selected data from Kemp Corporation are reproduced below:

KEMP CORPORATION Product-Line Information ($ thousands)

Year 1 Year 2 Year 3 Year 4 Data communications equipment Net sales.................................................$4,616 $5,630 $4,847 $6,890 Income contribution ................................ 570 876 996 1,510 Inventory ................................................. 2,615 2,469 2,103 1,897 Time recording devices Net sales................................................. 3,394 4,200 4,376 4,100 Income contribution ................................ 441 311 34 412 Inventory ................................................. 1,193 2,234 2,574 2,728 Hardware for electronics industry Net sales................................................. — — $ 1,564 $ 1,850 Income contribution ................................ — — 771 919 Inventory ................................................. — — 331 287 Home sewing products Net sales.................................................$1,505 $ 1,436 1,408 1,265 Income contribution ................................ 291 289 276 342 Inventory ................................................. 398 534 449 526 Corporate totals Net sales................................................. 9,515 11,266 12,195 14,105 Income contribution ................................ 1,302 1,476 2,077 3,183 Inventory ................................................. 4,206 5,237 5,457 5,438 Required:

a. For Year 4, compute the following ratios:

(1) Inventory/Sales.

(2) Inventory/Income contribution.

b. Compute the percentage of each product line’s income contribution to the total for each year. Interpret this evidence.

c. Comment on the desirability of an investment in each product line.