Question

Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $5,600 from sales $200,000, variable costs $175,000, and fixed costs $30,600. If the Big Bart line is eliminated, $19,600 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Continue Eliminate N.I. Increase/(Decrease)

Sales $200,000 $0 ($200,000)

- Variable Costs $175,000 $0 $175,000

Contribution margin $25,000 $0 ($25,000)

- Fixed Cost $30,600 $19,600 $11,000

Net Income (Loss) ($5,600) ($19,600) ($14,000)

Conclusion: The production line should be Continued, because eliminating the production line would lead to a further Decrease in Net Income by $14,000,