Question

Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $3,500 from sales $201,000, variable costs $175,000, and fixed costs $29,500. If the Big Bart line is eliminated, $20,000 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated.

Answer 1

Net Income Analysis

Continue Eliminate Increase/Decrease

Sales 201,000 0 201,000

Less: Variable cost 175,000 0 175,000

Contribution margin 26,000 0 26,000

Less: Fixed expenses 29,500 20,000 9,500

Net Income -3,500 20,000 -16,500

Therefore, the Big Bart line should not be continued.