Question

Deleting of Segment

1. XYZ Company has three product lines. The company is considering dropping Product 2 because it has been operating at a loss. The following summarizes the income of the three product lines. Should XYZ Company drop Product 2 because it has been operating at a loss?

	Product 1		Product 2		Product 3		Total
Sales	$15,000		$22,000		$37,000		$74,000
Less: Variable Costs	9,000		10,000		19,000		38,000
Contribution Margin	$ 6,000		$12,000		$18,000		$36,000
Less: Fixed Costs
Traceable	3,000		10,000		6,000		19,000
Allocated	1,000		3,500		5,000		9,500
Net Income	$ 2,000		($ 1,500)		$ 7,000		$ 7,500

Answer 1

segment margin income statement if product 2 drops Product1 product2 product3 total 15000 9000 6000 3700052000 19000 1800024000 sales ess variable costs 28000 ess fixed cots traceable allocated net income decisiorn change in net operating income (5500-7500) because if you drop the product 2 it will generates 2000 of loss so better to continue product 2 9000 9500 5500 3000 1000 2000 6000 5000 7000 3500 3500 continue the product 2 -2000