Question

Brief Exercise 12-8 Partially correct answer. Your answer is partially correct. Try again. Sheffield, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $4,000 from sales $201,000, variable costs $176,000, and fixed costs $29,000. If the Big Bart line is eliminated, $20,100 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

Answer:

The Big Bart line should NOT be eliminated.

Explanation:

The analysis can be prepared as follows:

Sheffield, Inc.

An Analysis showing whether the Big Bart line should be eliminated.

Details                               Continue         Eliminate

                                               $                         $

Sales                                 201,000                  0

Variable costs                 (176,000)                  0    

Contribution margin         25,000                   0

Fixed costs                     (29,000)            (20,100)  

Net profit (loss)              (4,000)             (20,100)  

From the analysis above, it can be seen that eliminating the Big Bart line would increase the net loss by $16,100 (i.e. $20,100 - $4,000 = $16,100) from $4,000 to $20,100. Therefore, the Big Bart line should NOT be eliminated.