Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump produ

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Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump produ

ct line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 850,000 Variable expenses: Variable manufacturing expenses $ 330,000 Sales commissions 42,000 Shipping 18,000 Total variable expenses 390,000 Contribution margin 460,000 Fixed expenses: Advertising (for the bilge pump product line) 270,000 Depreciation of equipment (no resale value) 80,000 General factory overhead 105,000 * Salary of product-line manager 32,000 Insurance on inventories 8,000 Purchasing department 45,000 † Total fixed expenses 540,000 Net operating loss $ (80,000 ) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

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stepan [3.5K] · Answer 1 · 2026-03-20T10:01:05+03:00

A financial disadvantage of $150,000 is noted. Ceasing the bilge pump product line will erase its variable costs; however, some fixed costs will remain intact. To determine the financial outcome of discontinuation, we must also account for any fixed costs that can be saved. The Contribution Margin is calculated from Sales minus variable costs, which excludes variable cost savings. Discontinuing won't impact overall factory overhead or total Purchasing Department expenses, so fixed cost savings will stem from Advertising, Salary of the product line manager, and inventory insurance. Savings from fixed costs accumulate to $310,000. The Contribution Margin loss from discontinuation amounts to ($460,000). Including fixed costs saved, we calculate: (460,000) + 310,000 = ($150,000). Thus, $150,000 remains in losses even after considering the fixed costs saved.