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?

Units Sales Less: Cost of goods sold Gross margin Less: Selling expenses Operating income Regular 10,000 $240,000 180,000 $ 60,000 60,000 $ Super 3,700 $740,000 481,000 $259,000 134,000 $125,000 Total 13.700 $980,000 661,000 $319,000 194,000 $125,000