HiTech manufactures two products: Regular and Super. The

HiTech manufactures two products: Regular and Super. The results of operations for 20x1 follow.

 

 Fixed manufacturing costs included in cost of goods sold amount to $30,000 for Regular and $74,000 for Super the remaining cost of goods sold is variable manufacturing costs. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; the remaining selling expenses are fixed cost.

Required:

1. If HiTech eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super, what would be the new operating income for the company? Prepare a new income statement below. Hint: Since the company is moving capacity over to Super the fixed costs incurred for the Regular product will shift to the Super product. Make sure you show your work.


Super

Units


Sales


Less: Cost of goods sold


Gross margin


Less: Selling Expense


Operating income



2. Should the company eliminate the Regular product? Why?