ABC Company produces wood, aluminum, and hard rubber versions of specialized counter tops. Their management is reviewing the product portfolio of the company. A segmented income statement for a recent period follows:

                                             Wood          Aluminum           Hard Rubber         Total 

Sales                                  $500,000           $200,000             $75,000         $765,000

Variable expenses             325,000            140,000                 65,000           523,000

Contribution margin          175,000              60,000                 10,000          242,000

Fixed expenses                      75,000               35,000                   22,000        132,000

Net income (loss)                  $100,000         25,000                    -$12,000       $110,000

Please advise the management of the net income result if the unprofitable line of hard rubber is discontinued.

(a) If none of the fixed expenses for the hard rubber line are avoidable. Given the result, should the management discontinue hard rubber line?

(b) If $20,000 of the fixed expenses for the hard rubber line are avoidable. Given the result, should the management discontinue hard rubber line?

Answer rating: 100% (QA)

To determine whether the management should discontinue the hard rubber line we need to calculate the ... View the full answer