(Solution) - Justa Coporation produces and sells three products A B and -(2025 Original AI-Free Solution)

Paper Details

Justa Coporation produces and sells three products, A, B, and C. The three products are sold in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement was prepared:

Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the quarterly statement.
In attempting to decide whether to eliminate the regional market, management gathered the following information:
All fixed cost is based on a prorated yearly amount. All administrative expense and fixed manufacturing expense are common to the three products and the two markets and are fixed for the period, whether a market is eliminated. Remaining marketing expense is fixed for the period and separable by market. All separable cost will be eliminated with the dropping of a market.
Required:
(1) Prepare the quarterly income statement showing contribution margin by market and in total.
(2) Assuming there are no alternative uses for Justa Corporation's present capacity, should the regional market be dropped? Why or why not?
(3) Prepare the quarterly income statement showing contribution margin by product.
(4) A new product to replace Product C can be ready for sale next year if Justa Corporation continues its research. The new product can be produced by converting the equipment presently used in production Product C. The conversion will increase fixed costs by $10,000 per quarter. Calculate the minimum contribution margin per quarter for the new product if Justa Corporation is to be no worse off financially than at present.