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 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses Alanson Boyne Conway Total $1,855 1,472 $383 $390 312 $78 $1,280 $185 1,115 45 165 $140 S0 95 $20 15 85 $40 15 96 $(33) 80 276 $27 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 be eliminated 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 than "15" Should Petoskey keep or drop Conway?

Explanation / Answer

1 Loss in contribution margin -78000 Avoidable salaries 96000 Change in profit 18000 Profit would increase by $18000 2 Drop Conway

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