A value-driven car manufacturer, Whispering, started its business more than 50 years ago, making and selling...
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A value-driven car manufacturer, Whispering, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Whispering for years due to its practical yet stylish nature. As times changed, Whispering designed models in different body styles, and those models have outpaced sedans, as follows. Sedan Sales $1,208,000 SUV $4,182,000 Truck Van $3,924,000 $2,013,000 Variable costs 697,000 1,994,000 1,782,000 1,105,000 Contribution margin 511,000 2.188,000 2,142,000 908,000 Fixed costs 817,600 894,000 1,195,000 804,000 Operating income (loss) $(306,600) $1,294,000 $947,000 $104,000 The income statements above reflect the second consecutive year the sedan category has lost money. Whispering is concerned about dropping this vehicle, however, since the company's success was originally built on it. (a) Your answer is correct. Whispering believes it can save $613,200 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan? (c) Whispering would be better off by $ eTextbook and Media 102200 Attempts: 1 of 3 used Assume that 75% of the fixed costs shown in the original information, for all product lines, are direct fixed costs. The remaining fixed costs are common fixed costs, allocated to the product lines according to their sales volumes. Recast the product-line income statements detailing the direct and allocated fixed costs for each, including a subtotal for segment margin and an overall total column. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Sales Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Allocated fixed costs Operating income Sedan $ SUV $ $ $ Truck A value-driven car manufacturer, Whispering, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Whispering for years due to its practical yet stylish nature. As times changed, Whispering designed models in different body styles, and those models have outpaced sedans, as follows. Sedan Sales $1,208,000 SUV $4,182,000 Truck Van $3,924,000 $2,013,000 Variable costs 697,000 1,994,000 1,782,000 1,105,000 Contribution margin 511,000 2.188,000 2,142,000 908,000 Fixed costs 817,600 894,000 1,195,000 804,000 Operating income (loss) $(306,600) $1,294,000 $947,000 $104,000 The income statements above reflect the second consecutive year the sedan category has lost money. Whispering is concerned about dropping this vehicle, however, since the company's success was originally built on it. (a) Your answer is correct. Whispering believes it can save $613,200 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan? (c) Whispering would be better off by $ eTextbook and Media 102200 Attempts: 1 of 3 used Assume that 75% of the fixed costs shown in the original information, for all product lines, are direct fixed costs. The remaining fixed costs are common fixed costs, allocated to the product lines according to their sales volumes. Recast the product-line income statements detailing the direct and allocated fixed costs for each, including a subtotal for segment margin and an overall total column. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Sales Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Allocated fixed costs Operating income Sedan $ SUV $ $ $ Truck
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