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. (Leave no cells blank. Enter zeros where appropriate.) $3,100,00€ MARINETTE COMPANY Income Statement-Canoe Segment Sales Variable costs Direct materials $ 670,000 Direct labor 720,000 Variable overhead 520,000 Variable selling and administrative 310,000 Total variable costs Contribution margin Fixed costs Direct 595,000 Indirect 520,000 Total fixed costs Net income 2,220,000 880,000 1,115,000 $ (235,000) 1. If canoes are discontinued, calculate the net income lost or gained. Keep the department Eliminate the department Sales Expenses:

Answer 1

1)
	Keep the Department	Eliminate the Department
Sales (a)	$3,100,000	$3,100,000
Expenses:
Variable costs:
Direct materials	$670,000	$670,000
Direct labor	$720,000	$720,000
Variable overhead	$520,000	$520,000
Variable selling and administrative	$310,000	$310,000
Total Variable costs (b)	$2,220,000	$2,220,000
Contribution margin (c )	$880,000	$880,000
Fixed costs:
Direct	$595,000	$595,000
Indirect	$520,000	$0
Total Fixed costs (d)	$1,115,000	$595,000
Net Income (c - d)	($235,000)	$285,000
Note: Indirect fixed costs are the costs which will incur even if the segment is discontinued, hence, in order to know the actual net income when discontinuing the Canoes segment, the fixed indirect costs are not considered.
2) No, the Canoes Segment should not be discontinued because the net income of $285,000 will generate from Canoes Segment if it continues. Therefore, the Canoes segment should be continued.