Discontinuing a Product Line Swanton Company currently sells three products: desk calendars, pen sets, and paper-clip holders.

The company is thinking of discontinuing the production and sale of paper-clip holders.

However, because many customers buy the products as a set, Swanton estimates that the sales of the other two products will decrease by 20% if the paper-clip holders are discontinued.

Current data on each of the three products are provided below.

1. What is the segment margin of the paper-clip holders?
2. Interpretive Question: Would you recommend dropping the paper-clip holder product line? Why or why not?

Transcribed Image Text:

Desk Calendars Paper-Clip Pen Sets Holders Total Units Sales revenue 40,000 20,000 14,000 $280,000 $240,000 $42,000 $562,000 Variable costs 160,000 160,000 45,000 365,000 Direct fixed costs 40,000 20,000 5,000 65,000 Indirect fixed costs 30,000 40,000 10,000 80,000