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Management has expressed special concern with the

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Management has expressed special concern with the

 

Management has expressed special concern with the regional market because of the extremely poor return on sales This market was entered a year ago because of excess capacity It was originally believed that the return oa sales would improve with time, but after a year no noticeable improvement can be seen from the results as reported in the above quarterly slatement. In attempting to decide whether to eliminate the regional market, the following informa- tion has been gathered: Produets $500,000 400,000 $400,000 70% 2% Sales Variable manufacturing expenser as a percentage of sales Variable selling expenses as a percentage of sales 60% 3% 2% Sales by Markets Product Local Retional 300.000 100000 00,000 100,000 All administrative expenses and fixed manufacturing expenses are common to the three roducts and the two markets and are flixed for the period. Remaining selling expenses are ixed or the period and separable by market. All fised expenses are based on a prorated yearly amount 1. 2. Assuming there are no alternative uses for the Justa Corporation’s present capacity, would Prepare the quarterly income statement showing contribution margins by markets you recommend dropping the regional market? Why or why not? 3. Prepare the quarterly income statement showing contribution margins by products 4. It is belicved that a new product can be ready for sale next year if the Justa Corporation decides to go ahead with continued research. The new product can be produced by simply converting equipment presently used in producing product C. This conversion will increase fixed costs by $10,000 per quarter. What must be the minimum contribution margin per quarter for the new product to make the change-over financially feasible?

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Management has expressed special concern with the

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Management has expressed special concern with the

 

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