THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GR... https://www.chegg.com/homework-help/questions-and-answers/crimson-...

  Textbook Solutions Expert Q&A Study Pack Practice 

Find solutions for your homework Search

home / study / business / accounting / accounting questions and answers / the crimson press curriculum center the crimson group, inc. energy devi…

Post a question
Question: THE CRIMSON PRESS CURRICULUM CENTER           ...
Answers from our experts for your tough
homework questions

THE CRIMSON PRESS CURRICULUM CENTER

Enter question
                                            THE CRIMSON GROUP, INC.
Energy Devices, Inc.
Energy Devices, Inc. (EDI), purchased energy-saving devices in bulk, repackaged them, and sold them to
hardware stores in various locales. Its products consisted of shower nozzles that re-strict the �ow of water, Continue to post
thermostats with timers, and storm windows. 10 questions remaining
Management was preparing the budget for the upcoming �scal year. Preliminary �gures, by product, are
shown below:

Shower Thermostats Storm Total

Snap a photo from your
Nozzles Windows
phone to post a question
We'll send you a one-time download
Number of items 800 200 500 1,500
link

Price per item $10 $80 $100 By providing your phone number, you agree to receive a one-time
automated text message with a link to get the app. Standard
messaging rates may apply.
Total revenue $8,000 $16,000 $50,000 $74,000

Purchase cost per 8 70 95

item
My Textbook Solutions
Total purchase costs 6,400 14,000 47,500 67,900

Allocated �xed 27,040 6,760 16,900 50,700

expenses
(includes all labor)
Employee... Contempor... Operations...
Total costs $33,440 $20,760 $64,400 $118,600
7th Edition 9th Edition 10th Edition

Pro�t (loss) $(25,440) $(4,760) $(14,400) $ (44,600) View all solutions

Assignment

�� What is breakeven for the year? What concerns, if any, do you have about this breakeven �gure?
�� Given that its preliminary budget shows a sizable loss, EDI must consider ways to eliminate this loss. What
budgetary options should management consider?
�� EDI thinks it can increase the sales of its products by advertising in local newspapers, and has decided to
spend $1,000 on advertising. To get the most out of its advertising dollar, it has decided to concentrate on
one product only. Given �nancial concerns only, please discuss how it should decide which product to
emphasize?
�� One of the managers of EDI has suggested that, since the company loses so much on shower nozzles, it
should discontinue selling them. What advice would you give EDI about this decision?


View comments (1)

Expert Answer

Anonymous answered this

Was this answer helpful? 0 0
63 answers

Breakeven = Fixed Cost / Contribution per unit

Shower Nozzles Thermostats Storm windows

Number of items 800 200 500

Price per item ( A) $10 $80 $100

Total Revenue $8,000 $16,000 $50,000

Purchase cost per item (B) $8 $70 $95

Contribution A-B $2 $10 $5

Contrution Margin 20.00% 12.50% 5.00%

Fixed Cost $27,040 $6,760 $16,900

1 of 3 6/15/2021, 12:01 AM
THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GR... https://www.chegg.com/homework-help/questions-and-answers/crimson-...

  Textbook Solutions Expert Q&A Study Pack Practice 

here �xed cost is allocated on the basis of units or number of items. which is wrong since total revenue or
variable cost ( purchase cost ) represents correct way to distribute �xed expenses. eventhough shower
nozzles has the most number of units , the revenue generated from it is the least. therefore it is not
advisable to allocate �xed overheads o the basis of number units. Therefore the breakeven for different
items doesnot represent correct values thereby arriving at a wrong conclusion.

inorder to cut losses, the company have to avoid products with highest loss and have to reduce �xed costs.

Inorder to choose which product to sell and which to discontinue, we have to look on Contribution per
product not on pro�t or loss. Items with highest contribution margin should be continued while items with
lowest contribution margin should be discontinued. Detailed workings is given below

Shower Nozzles Thermostats Storm windows Total

Number of items 800 200 500 1500

Price per item ( A) $10 $80 $100

Total Revenue $8,000 $16,000 $50,000 $74,000

Purchase cost per item (B) $8 $70 $95 $173

Purchase cost $6,400 $14,000 $47,500 $67,900

Contribution A-B $2 $10 $5

Contrution Margin 20.00% 12.50% 5.00%

Fixed Cost $2,345 $20,514 $27,841 $50,700

Total Cost $8,745 $34,514 $75,341 $118,600

Pro�t/Loss -$745 -$18,514 -$25,341 -$44,600

Breakeven units/items 1172 2051 5568

Fixed cost is allocated on the basis of purchase cost per item

For shower nozzles, �xed cost = 50700 * 8/173 =2345

For thermostats , �xed cost = 50700 * 70/173= 20514

For storm windows, Fixed cost = 50700 * 95/173 =27841

After changing the allocation of �xed cost, the product with least loss , highest contribution margin and
with lowest �xed cost is shower nozzles. therefore opinion of manager is not correct. EDI should continue
selling shower nozzles while discontinuing other two products.


Comment

COMPANY

LEGAL & POLICIES

CHEGG PRODUCTS AND SERVICES

CHEGG NETWORK

CUSTOMER SERVICE

2 of 3 6/15/2021, 12:01 AM
THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GR... https://www.chegg.com/homework-help/questions-and-answers/crimson-...

  Textbook Solutions Expert Q&A Study Pack Practice 

© 2003-2021 Chegg Inc. All rights reserved.

3 of 3 6/15/2021, 12:01 AM