Solved: The officers of Bardwell Company are reviewing

the profitability
The officers of Bardwell Company are reviewing the profitability

The officers of Bardwell Company are reviewing the profitability of the company's four products
and the potential effects of several proposals for varying the product mix. The following is an
excerpt from the income statement and other data.

Each of the following proposals is to be considered independently of the other proposals.

Consider only the product changes stated in each proposal; the activity of the other proposals
remains stable.
a. What is the effect on income if Product P is discontinued?
b. What is the effect on income if Product R is discontinued?
c. What is the effect on income if Product R is discontinued and a consequent loss of customers
causes a decrease in sales of 200 units of Product Q?
d. What is the effect on income if the sales price of product R is increased to $8.00 with a
decrease in the number of units sold to 1,500?
e. Janet Poole, marketing manager at Bardwell Company, approaches Pamela Bardwell, the
company's president. She proposes that Bardwell Company drop production of Product S to
produce Product T, which is made on the same production equipment.
Product T has a selling price of $14.00, variable manufacturing costs of $9.00, and variable
selling expenses of $2.46. Poole estimates that 2,100 units of Product T could be sold annually;
she feels that this would be good for the company, as total sales revenue will increase by
$7,400 and Product T would be replacing a product that is currently losing money for the
company. Poole also believes that this would be good for the morale of the sales department,
as total sales commissions will increase. Should Bardwell consider Poole's suggestion? Why or
why not?
f. Explain why traditional cost accounting sometimes leads managers to make
incorrectdecisions.

The officers of Bardwell Company are reviewing the profitability

ANSWER
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