(Product line) Johnson Metal Products produces three products: wire, tubing, and sheet metal. The company is currently contemplating the elimination of the tubing product line because it is showing a pretax loss. An annual income statement follows:

a. Should corporate management drop the tubing product line? Support your answer with appropriate schedules.

b. How would the pretax profit of the company be affected by the decision?

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JOHNSON METAL PRODUCTS Income Statement by Product Line For the Year Ended July 31, 2001 (in thousands) Sheet Wire Tubing Metal Total Sales $ 2,200 $ 1,600 $ 1,800 $5,600 Cost of sales (1,400) (1,000) (1,080) (3,480) Gross margin $ 800 $ 600 $ 720 $ 2,120 Avoidable fixed and variable costs $ 630 $ 725 $ 520 $ 1,875 Allocated fixed costs 90 80 105 275 Total fixed costs $ 720 $ 805 $ 625 $ 2,150 Operating profit $ 80 $ (205) $ 95 $ (30)