Question

Carla Vista Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $500,000, variable expenses of $360,000, and fixed expenses of $148,000. Therefore, the gloves and mittens line had a net loss of $8,000. If Carla Vista eliminates the line, $36,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line.

Answer 1

Answer and Explanation:

The Preparation of analysis showing whether the company should eliminate the gloves and mittens line is shown below:-

Particulars Continue Eliminate Net Income

Increase (Decrease)

Sales $500,000 0 ($500,000)

Variable

expenses $360,000 0 $360,000

Contribution

margin $140,000 0 ($140,000)

Fixed costs $148,000 $36,000 $112,000

Net income ($8,000) ($36,000) ($28,000)

The analysis showing that the Carla Vista Corporation should manufacture gloves and mittens else there loss will be increased by $28,000