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Kane Manufacturing has three product lines: A, B, and C. The following information is available
for each product line:
Management is considering dropping product line C.
Required:
blank
by $ .
A B C Total
Sales $600,000 $450,000 $300,000 $1,350,000
Variable costs 200,000 150,000 230,000 580,000
Contribution margin 400,000 300,000 70,000 770,000
Fixed costs 75,000 60,000 85,000 220,000
Net income $325,000 $240,000 $(15,000) $550,000
Solution
A. Before dropping C, Kane should consider the fact that Product C is absorbing the highest
percentage of fixed cost among the three product lines. If C’s production is stopped, the other
two units would have to bear the entire fixed cost which would bring down the total net income.
B.Had C’s fixed cost been avoidable, the company’s overall net income would go up
from 550000 to 565000, a 2.72% increase in Net income. Hence,
Company’s Overall Net Income : 565000
C.If C’s fixed cost is unavoidable, the company’s overall net income would go down
from 550000 to 480000, a 12.72% decrease in Net income.
Company’s Overall Net Income :480000
D.If half of Product C ’s fixed cost is avoidable, the overall net income would come down to
522500, a 5% decrease in Net income.
Company’s Overall Net Income : 522500

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Kane Manufacturing has three product lines- A- B- and C- The following.docx

  • 1. Kane Manufacturing has three product lines: A, B, and C. The following information is available for each product line: Management is considering dropping product line C. Required: blank by $ . A B C Total Sales $600,000 $450,000 $300,000 $1,350,000 Variable costs 200,000 150,000 230,000 580,000 Contribution margin 400,000 300,000 70,000 770,000 Fixed costs 75,000 60,000 85,000 220,000 Net income $325,000 $240,000 $(15,000) $550,000 Solution A. Before dropping C, Kane should consider the fact that Product C is absorbing the highest percentage of fixed cost among the three product lines. If C’s production is stopped, the other two units would have to bear the entire fixed cost which would bring down the total net income. B.Had C’s fixed cost been avoidable, the company’s overall net income would go up from 550000 to 565000, a 2.72% increase in Net income. Hence, Company’s Overall Net Income : 565000 C.If C’s fixed cost is unavoidable, the company’s overall net income would go down from 550000 to 480000, a 12.72% decrease in Net income. Company’s Overall Net Income :480000
  • 2. D.If half of Product C ’s fixed cost is avoidable, the overall net income would come down to 522500, a 5% decrease in Net income. Company’s Overall Net Income : 522500