Dropping or Retaining a Segment [LO2]

Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement:

Discontinuing the overnight cases would not affect the company’s sales of its other product lines, its total general factory overhead, or its total purchasing department expenses.
Required:
Would you recommend that the company discontinue the manufacture and sale of overnight cases?
Support your answer with appropriate computations.

Transcribed Image Text:

Sales.... Variable expenses: Dexter Products, Inc. Income Statement-Overnight Cases For the Quarter Ended June 30 $450,000 Variable manufacturing expenses. Sales commissions.... $130,000 48,000 Shipping..... Total variable expenses. 12,000 190,000 Contribution margin. 260,000 Fixed expenses: Salary of product-line manager.. 21,000 General factory overhead.. 104,000* Depreciation of equipment (no resale value). 36,000 Advertising-traceable. 110,000 Insurance on inventories 9,000 Purchasing department. 50,000+ Total fixed expenses Net operating loss.. 330,000 $ (70,000) *Allocated on the basis of machine-hours. Allocated on the basis of sales dollars.|