Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne,

Question

Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows Alanson Boyne Conway Ttal Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses $435 $%1,900 1,508 $392 $1,280 $185 1,115 348 $165 $140 $87 50 95 $20 15 85 $40 14 112 $(39) 79 292 $21 Depreciation Salaries Segment margin Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped Required: CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather thar 15" Should Petoskey keep or drop Conway?

Explanation / Answer

Answer)

It is assumed that revenue of Alanson and Boyne doesn't change

Here, even though The product Conway dropped the depreciation and salaries of plant will not be changed.The profit after dropping of Conway is:

$20000+$40000-$112000(supervisor salaries of Conway) -$14000(depreciation allocated to Conway)

=$66000 loss.

Here the profit is declined by $87000

Petoskey must keep Conway in order decrease the loss.

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