Vogel Co: Income Statement, Contribution Margin, Revenue
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Vogel Co. produces three models of heating and air conditioning thermostat components. The following table summarizes data about each model:
[TABLE]
Required:
(a) On what basis does the $30,000 of company fixed expenses appear to be allocated?
(b) Calculate the effect on total company net income if the MV12 model were discontinued. (Omit the "$" sign in your response.)
The net income would by $
(c) Calculate the contribution margin ratio for each model. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
BV19 HV41 MV12
Contribution margin ratio % % %
________________________________________
(d) If an advertising campaign focusing on a single model were to result in an increase of 5,000 units in the quantity of units sold, which model should be advertised?
(e) If an advertising campaign focusing on a single model were to result in an increase of $15,000 in revenues, which model should be advertised?
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Solution Summary
This solution illustrates how to determine the basis upon which company-wide fixed costs are allocated, computing the contribution margin ration, determining the effect on net income of discontinuing a product line and determining how to allocate advertising based upon its effect on different product lines.
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