Question

Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe segment and is considering dropping that product line. The following information is available regarding its canoe segment. MARINETTE COMPANY Income Statement—Canoe Segment Sales $ 3,200,000 Variable costs Direct materials $ 690,000 Direct labor 740,000 Variable overhead 540,000 Variable selling and administrative 320,000 Total variable costs 2,290,000 Contribution margin 910,000 Fixed costs Direct 615,000 Indirect 540,000 Total fixed costs 1,155,000 Net income $ (245,000 ) 1. If canoes are discontinued, calculate the net income lost or gained. 2. Should management discontinue the manufacturing of canoes?

Answer 1

	Keep the Department	Eliminate the Department
Sales	3200000	0
Expenses:
Direct materials	690000	0
Direct labor	740000	0
Variable overhead	540000	0
Variable selling and administrative	320000	0
Direct Fixed costs	615000	0
Indirect Fixed costs	540000	540000
Total expenses	3445000	540000
Net income(loss)	(245000)	(540000)
The Canoe division should be	kept
If the Canoe division is eliminated, income will be	lower by	295000
2
NO, management should not discontinue the manufacturing of canoes.