The following product line information is for the Swiss Watch Company. The company is considering dropping its Children’s product line due to poor operating income performance. Fixed expenses are allocated to each product line based on sales revenue. (see attachment for values)
(a.) Calculate the effect on the Swiss Company’s operating income if the Children’s watch product line is discontinued. Comment on your analysis.
(b.) Assume the Swiss Company’s discontinues its Children’s product line. Calculate the total operating income for the Swiss Company.
(a.) Calculate the effect on the Swiss Company’s operating income if the Children’s watch product line is discontinued. Comment on your analysis.
| Particular | Amount in $ |
| Sales | 20,000 |
| Less: | |
| variable Cost | 12,500 |
| Loss of CM | 7,500 |
Company had a loss if 7500 CM . Here fixed cost is not considered because it will remain unchanged weather product continue or not.
2)
Assume the Swiss Company’s discontinues its Children’s product line. Calculate the total operating income for the Swiss Company
| Men’s | Women’s | Total | |
| Particular | Amount in $ | ||
| Sales | 15,000 | 25000 | 40,000 |
| Less: | |||
| variable Cost | 5,000 | 7500 | 12,500 |
| Contribution Margin | 10,000 | 17,500 | 27,500 |
| Less | |||
| Fixed Expenses | 7500 | 12500 | 20,000 |
| Allocatio of Children’s Fixed Cost | 3750 | 6250 | 10,000 |
| Profit/Loss | -1,250 | -1,250 | -2,500 |
