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8 March, 18:26

Gator Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $480,000, variable expenses of $360,000, and fixed expenses of $140,000. Therefore, the gloves and mittens line had a net loss of $20,000. If Gator eliminates the line, $35,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line. (Enter negative amounts using either a negative sign preceding the number e. g. - 45 or parentheses e. g. (45).)

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  1. 8 March, 19:11
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    The company will lose $85,000 if the product line is discontinued

    Explanation:

    Giving the following information:

    Sales = 480,000

    variable expenses = (360,000)

    Contribution margin = 120,000

    fixed expenses = (140,000)

    Net operating income = (20,000)

    If Gator eliminates the line, $35,000 of fixed costs will remain.

    We need to determine the effect on income if the product line is discontinued.

    Effect on income = fixed costs - net operating income

    Effect on income = - 105,000 - (-20,000)

    Effect on income = - 85,000

    The company will lose $85,000 if the product line is discontinued
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