Hi
You have to identify which costs are relevant and which are not. Relevant will change among alternatives and not relevant will not.
Depreciation of the special equipment is a fixed expense and will remain regardless the product is dropped or not, hence not relevant.
If Model XP5 is dropped, the P&L of this product would be
Overhead (Depreciation) 200,000 * 30% = (60,000)
Operating Income = (60,000)
vs
Operating Income = (20,000)
Operating income decreased by 40,000
I hope that helps.
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Brian Ruskolekier
Controller
Buenos Aires
Argentina
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Original Message:
Sent: 01-23-2023 04:14 PM
From: Sameh Mahmoud Ismail
Subject: quiz part 2 help
| camera manufacturing company is considering eliminating Model XP5 from its camera line because of losses over the past quarter. The past quarter's financial information for Model XP5 is shown below. |
| Sales (1,000 units) | $600,000 | | Manufacturing costs: | | Direct materials | 300,000 | | Direct labor ($15 per hour) | 120,000 | | Overhead | 200,000 | | Operating loss | $ (20,000) |
Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for Model XP5 that has no resale value. If Model XP5 is dropped from the product line, operating income will |
| A. | Increase by $20,000. | | B. | Increase by $60,000. | | C. | Decrease by $20,000. | | D. | Decrease by $40,000 |
|
why here the answer d
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Sameh Mahmoud Ismail
Accountant
Giza
Egypt
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