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

Price
Q-Gauge
$
200
E-Gauge
$
90
R-Gauge
$
180

Units sold
8,000
10,000
5,000

The unit manufacturing costs for the three products are as follows:
Q-Gauge
E-Gauge
Direct material
$
31 $
17
Direct labor
40
20
Variable manufacturing overhead
45
30
Fixed manufacturing overhead
15
10
Total
$
131 $
77
Special selling expenses (primarily advertising, promotion, and shipping)
are incurred for each gauge as follows:
Quarterly
Shipping
Advertising and
Expenses
Promotion
Q-Gauge
E-Gauge
R-Gauge

Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Income before taxes

Revenue
Variable costs
Contribution margin
Fixed costs
Net income/(loss)

210,000 $
100,000
40,000

10
4
10

Income Statement
Second Quarter
(in thousands)
Q-Gauge
E-Gauge
1,600,000 $
900,000
1,048,000
770,000
552,000
130,000
370,000
185,000
182,000 $
(55,000)

Continue
900,000
900,000
185,000
(185,000) $

Eliminate

145,000
(145,000)

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

Q-Gauge units sold

Revenues
Variable costs
Contribution margin
Fixed cost
Net income/(loss)

8,000

9,200

Option 1 (same)
$
1,600,000
1,008,000
592,000
410,000
182,000

Option 2
(add $100 thou.
to S/P)
$
1,840,000
1,159,200
680,800
510,000
170,800

Was the Alice's action in increasing S/P of Q-Gauge correct?

E-Gauge units sold

Revenues
Variable costs
Contribution margin
Fixed cost
Net income/(loss)

10,000

5,000

Option 2
(decrease by
Option 1 (same)
50%)
$
900,000 $
450,000
710,000
355,000
190,000
95,000
245,000
225,000
(55,000)
(130,000)

Was the Alice's action in decreasing E-Gauge by 50% correct?

Sales
Variable costs
Contribution margin
Fixed costs
Income before taxes

Income Statement
Second Quarter
(in thousands)
Q-Gauge
E-Gauge
1,600,000 $
900,000
1,008,000
710,000
592,000
190,000
410,000
245,000
182,000 $
(55,000)

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

R-Gauge
$

50
60
60
20
190

per unit
per unit
per unit

R-Gauge
900,000 $
950,000
(50,000)
135,000
(185,000) $

Net Income
Increase
(Decrease)
$
(900,000)
(900,000)
(40,000)
$
40,000

Total
3,400,000
2,768,000
632,000
690,000
(58,000)

YES

Net Income
Increase
(Decrease)
$
240,000
(151,200)
(88,800)
(100,000)
(11,200)
NO

Net Income
Increase
(Decrease)
$
(450,000)
355,000
95,000
20,000
(75,000)
NO

R-Gauge
900,000 $
900,000
185,000
(185,000) $

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

t-line income statement based detailing costs

ng on the contribution margin of revenue to

Variable costs
Fixed costs
Fixed cost (selling expenses)
Fixed cost (others)
Total costs
Variable cost per unit

$
$

Q-Gauge
1,008,000 $
410,000
210,000
200,000
1,418,000 $
126 $

E-Gauge
710,000
245,000
100,000
145,000
955,000
71

$
$

R-Gauge
900,000
185,000
40,000
145,000
1,085,000
180