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 $330 $1,795 1,408 $387 $1,280 $185 45 $165 $140 1,115 248 $82 50 95 $20 13 116 $(47) 78 296 $13 Depreciation 15 Salaries 85 Segment margin $40 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" Increase 47,000 X Feedback Check My Work Look at contribution margin and adjust for dropping product line. Consider the sunk cost and that it is not relevant Learning Objective 2.

Explanation / Answer

Differental analysis :

So overall profit increase by 34000

Loss if product continue -47000 Loss if product drop -13000 So if product drop then profit increase by 34000

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