I need help solving this problem ISE 10-15 Dropping or Retaining a Segment [LO10

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I need help solving this problem

ISE 10-15 Dropping or Retaining a Segment [LO10-2 he eexpensive car? Explain Kataskeves, S.A.. of Greece makes marine equipment. The company has been experiencing its bilge pump product line for several years. The most recent quarterly contribution format tatement for the bilge pump product line follows TAKE TWO Sales S690,000, Variable Thalassines Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 expenses are unchanged Sales Variable expenses: $850,000 Variable manufacturing expenses Sales commissions Shipping $330,000 42,000 18,000 390,000 Total variable expenses Contribution margin Fixed expenses: 460,000 270,000 Advertising Depreciation of equipment (no resale value) General factory overhead 80,000 105,000-_ 32,000 Salary of product-line manager. 8,000 45.000t- Insurance on inventories. Purchasing department. Total fixed expenses Net operating loss. 540,000 $ 180,000) Common costs allocated on the basis of machine-hours. Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would nu elfect on the company's total general factory overhead or total Purchasing Department expenses Required: uid you recommend that the bilge pump product line be discontinued? Support your answer with appro- priate computations

Explanation / Answer

Keep Product Line Drop Product line Difference Net operating income Increase/Decrease Sales                                          850,000                                                   -                                        850,000 Variable Expenses Variable Manufacturing expense                                          330,000                                                   -                                        330,000 Sales Commissions                                            42,000                                                   -                                          42,000 Shipping                                            18,000                                                   -                                          18,000 Total Variable Expense                                          390,000                                                   -                                        390,000 Contribution Margin                                          460,000                                                   -                                      (460,000) Fixed expenses: Advertising                                          270,000                                                   -                                        270,000 Depreciation of equipment                                            80,000                                          80,000                                                  -   General factory overhead                                          105,000                                       105,000                                                  -   Salary of product line manager                                            32,000                                                   -                                          32,000 Insurance on inventories                                               8,000                                                   -                                             8,000 Purchasing department                                            45,000                                          45,000                                                  -   Total fixed expenses                                          540,000                                       230,000                                      310,000 Net operating Income (loss)                                          (80,000)                                     (230,000)                                    (150,000) Would you recommend that the bilge pump product line be discontinued? NO

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