Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (do-it-yourself, or DIY) outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-inch, 44-inch, and 54-inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented income statement for the fan and is concerned about the results for the 36-inch model. 

If the 36-inch model is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 25 percent.

Required

Should Lamothe Kitchen and Bath drop the 36-inch model product line? Prepare a differential cost schedule like the one in Exhibit 4.8 to support your recommendation.

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Revenues.. Variable costs.. Fixed costs allocated to products.. Operating profit (loss)..... 36 Inch $357,000 223,600 139,230 $(5,830) 44 Inch 54 Inch $557,600 $335,400 277,680 155,500 217,464 130,806 $ 62,456 $ 49,094