Question

Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $3,500 from sales $201,000, variable costs $175,000, and fixed costs $29,500. If the Big Bart line is eliminated, $20,000 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated.

Answer 1

Answer:

                             Net Income Analysis

                                       Continue   Eliminate   Increase/Decrease

Sales                               201,000          0                 201,000

Less: Variable cost        175,000          0                 175,000

Contribution margin      26,000            0                  26,000

Less: Fixed expenses    29,500          20,000         9,500

Net Income                     -3,500           20,000       -16,500

Therefore, the Big Bart line should not be continued.