Dropping a product Merchant Company manufactures and sells three models of electronic printers. Ken Gail, president of the company, is considering dropping model JT484 from its product line because the company has experienced losses for this product during the past three quarters. The following product-level operating data have been compiled for the most recent quarter:

In addition, the following information is also available: ??? Factory rent and depreciation will not be affected by a decision to drop model JT484.??? Quarterly utility bills will be reduced from $40,000 to $31,000 if JT484 isdropped.??? Supervision costs for JT484 can be eliminated if dropped.??? The maintenance department will be able to reduce quarterly costs by $7,000 if JT484 is dropped.??? Elimination of JT484 will make it possible to eliminate two administrative staff positions with combined salaries of $30,000 per quarter.Required(a) Should Merchant Company eliminate JT484?(b) Merchant's sales manager believes that it is important to continue to produce JT484 to maintain a full product line. He expects the elimination of JT484 will reduce sales of the remaining two products by 5% each. Will this information change your answer to part a? Explain.

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CATEGORY TOTAL JT284 JT384 JT484 S300,000 Sales $1,000,000 600,000 $400,000 $500,000 $200,000 Variable costs Contribution margin Fixed costs: Rent Depreciation $200,000 $100,000 S100,000 550,000 S25,000 $10,000 $15,000 30,000 40,000 50,000 30,000 100,000 5,000 5,000 6,000 20,000 15,000 Utilities Supervision Maintenance Administrative Total fixed costs Operating income (loss) 15,000 15,000 30,000 9,000 50,000 $137,000 (S37,000) 30,000 $135,000 $65,000 $330,000 S70,000 $58,000 $42,000