The unit sales prices for the three products are as follows:Price Units sold

Q-Gauge $ 200 8,000 E-Gauge $ 90 10,000 R-Gauge $ 180 5,000

The unit manufacturing costs for the three products are as follows:Q-Gauge E-Gauge R-Gauge

Direct material $ 31 $ 17 $ 50 Direct labor 40 20 60 Variable manufacturing overhead 45 30 60 Fixed manufacturing overhead 15 10 20 Total $ 131 $ 77 $ 190

Q-Gauge $ 210,000 $ 10 per unit E-Gauge 100,000 4 per unit R-Gauge 40,000 10 per unit

Income StatementSecond Quarter(in thousands)

Q-Gauge E-Gauge R-Gauge Sales $ 1,600,000 $ 900,000 $ 900,000 Cost of goods sold 1,048,000 770,000 950,000 Gross margin 552,000 130,000 (50,000) Selling and administrative expenses 370,000 185,000 135,000 Income before taxes $ 182,000 $ (55,000) $ (185,000)

Continue Eliminate Revenue $ 900,000 $ (900,000) Variable costs 900,000 (900,000) Contribution margin - - Fixed costs 185,000 145,000 (40,000) Net income/(loss) $ (185,000) $ (145,000) $ 40,000

Special selling expenses (primarily advertising, promotion, and shipping)are incurred for each gauge as follows:

Quarterly Advertising and

Promotion

Shipping Expenses

Net IncomeIncrease

(Decrease)

Was the Alices's action in eliminating R-Gauge line correct? YES

Q-Gauge units sold 8,000 9,200

Option 1 (same) Revenues $ 1,600,000 $ 1,840,000 $ 240,000 Variable costs 1,008,000 1,159,200 (151,200) Contribution margin 592,000 680,800 (88,800) Fixed cost 410,000 510,000 (100,000) Net income/(loss) 182,000 170,800 (11,200)

Was the Alice's action in increasing S/P of Q-Gauge correct? NO

E-Gauge units sold 10,000 5,000

Option 1 (same) Revenues $ 900,000 $ 450,000 $ (450,000) Variable costs 710,000 355,000 355,000 Contribution margin 190,000 95,000 95,000 Fixed cost 245,000 225,000 20,000 Net income/(loss) (55,000) (130,000) (75,000)

Was the Alice's action in decreasing E-Gauge by 50% correct? NO

Income StatementSecond Quarter(in thousands)

Q-Gauge E-Gauge R-Gauge Sales $ 1,600,000 $ 900,000 $ 900,000 Variable costs 1,008,000 710,000 900,000 Contribution margin 592,000 190,000 - Fixed costs 410,000 245,000 185,000 Income before taxes $ 182,000 $ (55,000) $ (185,000)

Option 2(add $100 thou.

to S/P)

Net IncomeIncrease

(Decrease)

Option 2(decrease by

50%)

Net IncomeIncrease

(Decrease)

JoAnn should recommend to Alice that for incremental analysis, product-line income statement based detailing costs based on variable and fixed components, to have better understanding on the contribution margin of revenue to variable costs.

Income StatementSecond Quarter(in thousands)

Total Q-Gauge $ 3,400,000 Variable costs $ 1,008,000 2,768,000 Fixed costs 410,000 632,000 Fixed cost (selling expenses) 210,000 690,000 Fixed cost (others) 200,000 $ (58,000) Total costs $ 1,418,000

Variable cost per unit $ 126

Income StatementSecond Quarter(in thousands)

Total $ 3,400,000 2,618,000 782,000 840,000 $ (58,000)

JoAnn should recommend to Alice that for incremental analysis, product-line income statement based detailing costs based on variable and fixed components, to have better understanding on the contribution margin of revenue to

E-Gauge R-Gauge $ 710,000 $ 900,000 245,000 185,000 100,000 40,000 145,000 145,000 $ 955,000 $ 1,085,000 $ 71 $ 180