Target Corporation believed it could increase the company’s profits by closing its stores in Canada. Other companies have also tried to improve their financial performance by downsizing. In November 2017, General Electric announced it would begin a downsizing operation that would result in their exiting businesses that were using over $20 billion in assets in the next one to two years. In January 2018, Newell Brands, the company whose products include Tupperware, Sharpie pens, Elmer’s Glue, and Rawlings sports products, announced it would be reducing its product offerings to the extent that it would close half of its facilities and reduce its revenues by 20 percent.

Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands, unit amounts are not. Assume that a manufacturer of breakfast cereals decides to eliminate one of its products called Sugar-Bits from a segment that currently produces three products. As a result, the following are expected to occur:

The number of units sold for the segment is expected to drop by only 43,800 because of the elimination of Sugar-Bits, since most customers are expected to purchase a Fiber-Treats or Carbo-Crunch product instead. The shift of sales from Sugar-Bits to Fiber-Treats and Carbo-Crunch is expected to be evenly split. In other words, the sales of Fiber-Treats and Carbo-Crunch will each increase by 138,000 units.

Rent is paid for the entire production facility, and the space used by Sugar-Bits cannot be sublet.

Utilities costs are expected to be reduced by $27,800.

All of the supervisors for Sugar-Bits were terminated. No new supervisors will be hired for Fiber-Treats or Carbo-Crunch.

All of the equipment being used to produce Sugar-Bits will be sold at its current market value of $36,900.

Facility-level costs will continue to be allocated between the product lines based on the number of units produced.

 

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Annual Costs of Operating Each Product Line Sales in units Sales in dollars Unit-level costs: Cost of production Sales commissions Shipping and handling Miscellaneous Total unit-level costs Product-level costs: Supervisors' salaries Facility-level costs: Product Line Earnings Statements (Dollar amounts are in thousands) Rent Utilities Depreciation on equipment Allocated companywide expenses Total facility-level costs Total product cost. Profit on products Fiber-Treats Carbo-Crunch 571, 200 571, 200 $ 571,200 $ 571,200 57,120 7,140 12,852 4,284 81,396 5,180 51,800 71,400 230,000 14,280 367,480 454,056 $ 117,144 57,120 7,140 11,424 2,856 78,540 3,980 51,800 71,400 230,000 14,280 367,480 450,000 $ 121,200 Sugar-Bits 319,800 $319,800 35,900 2,780 5,180 2,400 46, 260 2,400 24,000 39,975 134,000 7,995 205,970 254,630 $ 65,170 Total 1,462, 200 $ 1,462,200 150,140 17,060 29,456 9,540 206,196 11,560 127,600 182,775 594,000 36,555 940,930 1,158,686 $ 303,514 Required Prepare revised product-line earnings statements based on the elimination of Sugar-Bits. (Hint. It will be necessary to calculate some per-unit data to accomplish this.) Annual Costs of Operating Each Product Line Sales in units Sales in dollars Unit-level costs: Cost of production Sales commissions Shipping and handling Miscellaneous Total unit-level costs Product-level costs: Supervisors' salaries Facility-level costs: Product Line Earnings Statements (Dollar amounts are in thousands) Rent Utilities Depreciation on equipment Allocated companywide expenses Total facility-level costs Total product cost. Profit on products Fiber-Treats Carbo-Crunch 571, 200 571, 200 $ 571,200 $ 571,200 57,120 7,140 12,852 4,284 81,396 5,180 51,800 71,400 230,000 14,280 367,480 454,056 $ 117,144 57,120 7,140 11,424 2,856 78,540 3,980 51,800 71,400 230,000 14,280 367,480 450,000 $ 121,200 Sugar-Bits 319,800 $319,800 35,900 2,780 5,180 2,400 46, 260 2,400 24,000 39,975 134,000 7,995 205,970 254,630 $ 65,170 Total 1,462, 200 $ 1,462,200 150,140 17,060 29,456 9,540 206,196 11,560 127,600 182,775 594,000 36,555 940,930 1,158,686 $ 303,514 Required Prepare revised product-line earnings statements based on the elimination of Sugar-Bits. (Hint. It will be necessary to calculate some per-unit data to accomplish this.)

Answer rating: 100% (QA)

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