Question

eBook Calculator 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 1,115 $185 45 $285 185 $1,750 1,345 Less: Variable expenses Contribution margin $165 $140 $100 $405 Less direct fixed expenses: Depreciation 50 95 15 85 15 108 $(23) 80 288 Salaries Segment margin $20 $40 $37 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 < Previous Next > Check My Work

Answer 1

Schedule showing new segment margin if conway is dropped Alanson Boyne Conway 1,024 $ 892 $ 132 $ Less 185 45 140 Total 1,209 937 272 $ $ $ $ $ Less Sales Revenue Variable cost Contribution Margin Fixed Cost Depreciation Salaries Segment Margin 50 $ 95 $ (13) $ 15 $ 85 $ 40$ 15 $ - $ (15) $ 80 180 12 L Working Sales Revenue Variable cost Alanson 1280 - (20% of 1280) 1115 - (20% of 1115) Profit with conway Profit without conway Impact on profit (Decrease by) 37,000 12,000 25,000 All income and expenses except depreciation will become O for conway if conway is dropped. It will also impact sale of alanson so sales and variable cost will reduce by 20%.