Brothers Corp. is considering dropping its talking dog product line due to continuing losses.
Revenue and cost data for the talking dog line for the past year follow:
$$\begin{array} { l r }
\text { Sales (20,000 units) } & 300,000 \
\text { Variable costs } & 180,000 \
\text { Contribution margin } & 120,000 \
\text { Fixed costs } & 140,000
\end{array}$$
If the talking dog is discontinued, then Brothers could avoid $110,000 per year in fixed costs.
Required:
a. What is the change in annual operating income from discontinuing the talking dog product line?
b. Assuming all other conditions stay the same, at what level of annual sales of the talking dog (in units) should Brothers be indifferent to discontinuing or continuing the product line?
c. Suppose that if the talking dog is dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products. If all other conditions are the same, what is the change in annual operating income from dropping the talking dog?

Question

Brothers Corp. is considering dropping its talking dog product line due to continuing losses.
Revenue and cost data for the talking dog line for the past year follow:
 $$\begin{array} { l r } 
\text { Sales (20,000 units) } & 300,000 \
\text { Variable costs } & 180,000 \
\text { Contribution margin } & 120,000 \
\text { Fixed costs } & 140,000
\end{array}$$ 
If the talking dog is discontinued, then Brothers could avoid $110,000 per year in fixed costs.
Required:
a. What is the change in annual operating income from discontinuing the talking dog product line?
b. Assuming all other conditions stay the same, at what level of annual sales of the talking dog (in units) should Brothers be indifferent to discontinuing or continuing the product line?
c. Suppose that if the talking dog is dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products. If all other conditions are the same, what is the change in annual operating income from dropping the talking dog?

Quizplus · Accepted Answer

The Answer of Brothers Corp. is considering dropping its talking dog product line due to continuing losses.
Revenue and cost data for the talking dog line for the past year follow:
 $$\begin{array} { l r } 
\text { Sales (20,000 units) } & 300,000 \
\text { Variable costs } & 180,000 \
\text { Contribution margin } & 120,000 \
\text { Fixed costs } & 140,000
\end{array}$$ 
If the talking dog is discontinued, then Brothers could avoid $110,000 per year in fixed costs.
Required:
a. What is the change in annual operating income from discontinuing the talking dog product line?
b. Assuming all other conditions stay the same, at what level of annual sales of the talking dog (in units) should Brothers be indifferent to discontinuing or continuing the product line?
c. Suppose that if the talking dog is dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products. If all other conditions are the same, what is the change in annual operating income from dropping the talking dog?

Brothers Corp If the Talking Dog Is Discontinued, Then Brothers Could Avoid