The cost accountant for Bruin Manufacturing, Inc., has prepared the analysis given below of the profitability of
Question:
The cost accountant for Bruin Manufacturing, Inc., has prepared the analysis given below of the profitability of each of the firm's three products. All fixed costs are allocated costs and are not related to specific products.
Management has been considering several options concerning the company's product mix to reduce or eliminate the loss on Item 103. The company's president has asked you to prepare an analysis of the effects on the company's net income before taxes for each of the following proposals.
Consider each proposal independently; no changes would occur in the other products.
PROPOSALS
1. Discontinue Item 103.
2. Increase the sales price of Item 103 to $40. Marketing analysis indicates that the increase in price will cause a decrease in sales of Item 103 to 1,000 units.
3. Discontinue Item 103 and use the resulting plant capacity to produce a new product, Item 104.
The department's marketing studies estimate that 1,500 units could be sold at $35 each. The variable costs and expenses per unit of Item 104 are estimated to be $11 per unit manufacturing cost and $8 per unit for operating expenses.
Step by Step Answer:
College Accounting Chapters 1-30
ISBN: 978-0077862398
14th edition
Authors: John Price, M. David Haddock, Michael Farina