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Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $3,800 from sales $201,000, variable costs $175,000, and fixed costs $29,800. If the Big Bart line is eliminated, $19,700 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).)

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TomShelby

Answer:

Big Bart should be continued.

The differential income is -15,900 This means the net income will decrease by 15,900 if discountinued. This is inconvinient to Lisah, Inc. It is better to continue with the Big Bart line.

Explanation:

Current scenario

sales 201,000

variable cost 175,000

contribution 26,000

fixed cost    29,800

net loss    3,800

If bart discontinued scenario:

contribution margin 0

fixed cost 19,700

net loss 19,700

differential income Alternative Income - Current Income

-19700 - (-3,800)  =-19,700 + 3,800 =  -15,900

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