7. Gena company has three product lines, one of which reflects the following results:

Sales $215,000

Variable expenses 125,000

Contribution margin 90,000

Fixed expenses 130,000

Net loss $ (40,000)

If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, by how much will the company's net income increase (decrease)?

8. KenKen Company produces three versions of baseball bats:

wood, aluminum, and hard rubber.

A condensed segmented income statement for a recent period follows:

Wood Aluminum Hard Rubber

Total Sales $500,000 $200,000 $65,000 $765,000

Variable expenses 325,000 140,000 58,000 523,000

Contribution margin 175,000 60,000 7,000 242,000

Fixed expenses 75,000 35,000 22,000 132,000

Net income (loss) $100,000 $ 25,000 $(15,000) $110,000

Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

9. Alas Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered:

Old Machine New Machine

Price $300,000 $600,000

Accumulated Depreciation 90,000 -0-

Remaining useful life 10 years -0-

Useful life -0- 10 years

Annual operating costs $240,000 $180,600

If the old machine is replaced, it can be sold for $24,000.

How much is the net advantage (disadvantage) of replacing the old machine?

Answer rating: 100% (QA)

7 Contribution margin 90000 less direct fixed expense... View the full answer