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 | Total | ||||||
Sales revenue | $1,280 | $185 | $360 | $1,825 | |||||
Less: Variable expenses | 1,115 | 45 | 288 | 1,448 | |||||
Contribution margin | $165 | $140 | $72 | $377 | |||||
Less direct fixed expenses: | |||||||||
Depreciation | 50 | 15 | 14 | 79 | |||||
Salaries | 95 | 85 | 120 | 300 | |||||
Segment margin | $20 | $40 | $(62) | $2 |
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.
Assume that 20% of the Alanson customers choose to buy from Petoskey because it offers a full range of products, including Conway. If Conway were no longer available from Petoskey, these customers would go elsewhere to purchase Alanson.
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".
$
The answer has been presente din the supporting sheet. For detailed answer refer to the supporting sheet.
Get Answers For Free
Most questions answered within 1 hours.