What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
The financial advantage (disadvantage) of discontinuing the bilge pump product line is -$150,000. This means that if Thalassines Kataskeves, S.A. decides to discontinue the bilge pump product line, they would incur a financial loss of $150,000.
Calculation of Financial Advantage (Disadvantage)
Fixed Expense Calculation:
The fixed expense is calculated by adding the advertising costs, salary of the product-line manager, and insurance on inventories.
Fixed expense = Advertising + Salary of product-line manager + Insurance on inventories
Fixed expense = $270,000 + $32,000 + $8,000
Fixed expense = $310,000
Financial Advantage (Disadvantage) Calculation:
The financial advantage (disadvantage) is calculated by deducting the fixed expenses from the contribution margin.
Financial Advantage (Disadvantage) = Fixed Expense - Contribution Margin
Financial Advantage (Disadvantage) = $310,000 - $460,000
Financial Advantage (Disadvantage) = -$150,000
Therefore, the financial advantage (disadvantage) of discontinuing the bilge pump product line is a loss of $150,000. This indicates that continuing to operate the bilge pump product line results in higher expenses compared to the contribution margin generated from sales, leading to a negative financial impact on the company.