A net loss of $60,000 was reported for Buzz Lightyear division of Asteroid Manufacturing Company for...
A net loss of $60,000 was reported for Buzz Lightyear division of Asteroid Manufacturing Company for the past year. This loss was computed as follows:
Sales $300,000
Variable costs (120,000)
Fixed costs (240,000)
Net Loss $ (60,000)
Because of the loss, Asteroid is considering discontinuing Buzz Lightyear. The managerial accountant estimates the 60% of Buzz Lightyear’s fixed costs are avoidable and 40% are unavoidable. Should Asteroid discontinue the Buzz Lightyear line? Why or why not?
Homework Answers
Incremental analysis
| Continue | Discontinue | Net income increase (decrease) | |
| Sales | 300000 | 0 | -300000 |
| variable cost | -120000 | 0 | 120000 |
| Fixed cost | -240000 | -96000 | 144000 |
| Net (loss) | -60000 | -96000 | -36000 |
Company should continue the Buzz lightyear line because it decreases company's loss by $36000
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A net loss of $60,000 was reported for Buzz Lightyear division
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