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A B F G H | J M N o D E 2 Condensed monthly operating income data for Senators Inc. for March 2020 is presented below. 3 4 5 $ 6 7 7 Total Ottawa Store Montreal Store 197,400 $ 80,000 $ 117,400 114,180 32,000 82,180 83,220 48,000 35,220 60,000 20.000 40,000 23,220 28,000 (4,780) 10,000 4.000 6.000 13,220 $ 24,000 $ (10,780) Sales Less variable expenses Contribution margin Less traceable fixed expense Segment margin Less common fixed expenses Operating Income 8 9 10 11 $ 12 13 Additional information regarding Senator's operations includes: 75% of each store's traceable fixed expenses are avoidable if the store were to be closed 14 15 16 Senator Inc. allocates common fixed expenses to each store on the basis of sales dollars. 17 18 19 Management estimates that closing the Montreal store would result in a 10% decrease in the Ottawa store sales, while closing the Ottawa store would not affect the Montreal store sales. 20 21 22 The operating results for March are representative of all months. 23 24 (b) 25 Senator Inc. is considering a promotional campaign at the Montreal store that would not affect the Ottawa store. Suppose that increasing monthly promotional expenses at the Montreal store by $ 5,000 will increase the Montreal store sales by 10% 26 27 28 29 Required: 30 (a) A decision by Senator Inc. to close the Montreal store would result in what monthly increase (decrease) in Senator's operating income? 31 32 Contribution Margin Lost (Montreal Store) $ (35,220) 33 Fixed Costs saved 30,000 34 Decrease in Contribution Margin (Ottawa Store) (4,800) 29 Required: 30 (a) A decision by Senator Inc. to close the Montreal store would result in what monthly increase (decrease) in Senator's operating income? 31 32 Contribution Margin Lost (Montreal Store) $ (35,220) 33 Fixed Costs saved 30,000 34 Decrease in Contribution Margin (Ottawa Store) (4,800) 35 36 37 Net increase (decrease) in operating income if Montreal store is closed $ (10,020) 38 39 40 (b) By how much would the monthly operating income of Senator's increase (decrease)? 41 42 Contribution margin $ 35,220 10% 43 44 Increase in Contribution Margin (Montreal Store) $ 3,522 45 Additional Fixed Costs $ (5,000) 46 Increase (decrease) in monthly operating income $ (1,478) 47 48 Drop a Segment - Part 2 of 2 Merrickville Windows & Doors manufactures Windows, Doors and Solar Panels in a modern plant located in beautiful, historic Merrickville. 49 The following sales and cost information is available relating to the profitability of these three product lines: 50 Notes Windows Doors Solar Panels 51 Sales $ 750,000 $ 475,000 $ 1,000,000 52 Costs: 53 Direct materials 300,000 209,000 400,000 54 Direct labour 75,000 57,000 80,000 55 Material handling 45,000 38,000 60,000 56 Depreciation b. 50,000 48,000 72,000 57 Selling & marketing c. 75,000 60,000 120,000 General administration d 150.000 100 000 200 000 a. 58 51 52 48 Drop a Segment - Part 2 of 2 Merrickville Windows & Doors manufactures Windows, Doors and Solar Panels in a modern plant located in beautiful, historic Merrickville. 49 The following sales and cost information is available relating to the profitability of these three product lines: 50 Notes Windows Doors Solar Panels Sales $ 750,000 $ 475,000 $ 1,000,000 Costs: 53 Direct materials 300,000 209,000 400,000 Direct labour 75,000 57,000 80,000 Material handling 45,000 38,000 60,000 Depreciation b. 50,000 48,000 72,000 57 Selling & marketing 75,000 60,000 120,000 General administration d. 150,000 100,000 200,000 Total costs 695,000 512,000 932,000 60 Operating income $ 55,000 $ (37,000 $ 68,000 54 55 56 a. C. 58 59 61 63 a. 65 c. 66 67 d. 68 69 70 71 72 62 The following additional information has been made available to you in the corresponding notes. Material handling costs vary directly with the number of units produced. 64 b. Depreciation is calculated using the straight-line method. 50% of the selling and marketing costs consist of corporate marketing costs and are allocated to the product lines based on relative product line sales. The balance of the selling and marketing costs is comprised of variable sales commissions. General administration costs include product line manager salaries which are: $ 60,000 for Windows' line $ 50,000 for the Doors' line $ 65,000 for the Solar Panels' line The balance is made up of costs that are allocated from head office and are not directly related to the product lines. 73 e. If the Doors product line is dropped, then its manager would be transferred to head office where she would replace a 74 $ 40,000 per year accounting clerk. 75 76 Required: 77 1. Assuming that the plant space taken up by the Doors product line would remain idle, should the product line be dropped? 78 79 80 81 82 83 84 Sales Direct materials Direct labour Material handling Depreciation Windows Doors $ 750,000 $ 300,000 75,000 45,000 50,000 Solar Panels 475,000 $ 1,000,000 209,000 400,000 57,000 80,000 38,000 60,000 48,000 72,000 Totals 2,225,000 909,000 212,000 143,000 170,000 L153 X fx J K A B B D D E F G | 76 Required: 77 1. Assuming that the plant space taken up by the Doorsproduct line would remain idle, should the product line be dropped? 78 79 Windows Doors Solar Panels Totals 80 Sales $ 750,000 $ 475,000 $ 1,000,000 2,225,000 81 Direct materials 300,000 209,000 400,000 909,000 82 Direct labour 75,000 57,000 80,000 212,000 83 Material handling 45,000 38,000 60,000 143,000 84 Depreciation 50,000 48,000 72,000 170,000 85 50% Commission 37,500 30,000 60,000 127,500 86 50% Allocation 37.500 30,000 60,000 127.500 87 Manager Salary $ 60,000 $ 50,000 $ 65,000 175,000 88 Other Cost 90,000 50,000 135,000 275,000 89 Total costs 695,000 512.000 932.000 2,139,000 90 Operating income $ 55,000 $ (37,000 $ 68,000 86,000 91 Net advantage (disadvantage) of dropping Doors line 126.000 92 93 Should the Doors product line de dropped (yes or no) Yes 94 95 96 2. Assuming that the idle space could be used by the Solar Panels product line and that its sales would increase by 97 $ 300,000 should the company discontinue the Doors product line? 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 Net advantage (disadvantage) of dropping Doors line 113 Totals 2,225,000 909,000 212,000 143,000 170,000 127,500 127,500 175,000 275,000 2,139,000 86,000 126,000 78 79 Windows Doors Solar Panels 80 Sales $ 750,000 $ 475,000 $ 1,000,000 81 Direct materials 300,000 209,000 400,000 82 Direct labour 75,000 57,000 80,000 83 Material handling 45,000 38,000 60,000 84 Depreciation 50,000 48,000 72,000 85 50% Commission 37,500 30,000 60,000 86 50% Allocation 37,500 30,000 60,000 87 Manager Salary $ 60,000 $ 50,000 $ 65,000 88 Other Cost 90,000 50,000 135,000 89 Total costs 695,000 512,000 932,000 90 Operating income $ 55,000 $ (37,000) $ 68,000 91 Net advantage (disadvantage) of dropping Doors line 92 93 Should the Doors product line de dropped (yes or no) 94 95 96 2. Assuming that the idle space could be used by the Solar Panels product line and that its sales would increase by 97 $ 300,000 should the company discontinue the Doors product line? 98 99 100 101 102 103 104 105 106 107 Yes 108 109 110 111 112 Net advantage (disadvantage) of dropping Doors line 113 114 Should the Doors product line be dropped (yes or no) 115