Question

Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe...

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 $ 2,000,000
Variable costs
Direct materials $ 450,000
Direct labor 500,000
Variable overhead 300,000
Variable selling and administrative 200,000
Total variable costs 1,450,000
Contribution margin 550,000
Fixed costs
Direct 375,000
Indirect 300,000
Total fixed costs 675,000
Net income $ (125,000)


1. If canoes are discontinued, calculate the net income lost or gained.

Homework Answers

Answer #1
Incremental analysis:
Continue Dropping Net Increase/Decrease in
Income
Sales revenue 2,000,000 0 -2000000
Variable cost:
Material -450000 0 450000
Labour -500000 0 500000
Variable Overheads -300000 0 300000
variable Selling and Admin -200000 0 200000
Fixed cost:
Direct Fixed cost -375000 0 375000
Indirect fixed cost -300000 -300000 0
Net Incremental Income/(loss) 125000 -300000 -175,000
Hence, the segment shall not be dropped as it leads incremental loss of $175000.
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