1) Paul was enjoying a nice backyard barbecue at his friends house when he sat down on one of the deck chairs and noticed that the fabric was all frayed and almost splitting apart! He quickly moved to a different chair, but the host, Arianny, noticed his sudden move and apologized. Sorry, Paul. I meant to put that chair into storage. I realized that some of these have really deteriorated in the elements, so I tried to go back to the manufacturer to buy replacement fabric, but they dont carry anything like this anymore. I guess Im out of luck.

a) Assume the furniture company based its decision to drop this product line on the following financials.

Fabric lawn chairs
Sales		$264,000
Variable costs		216,000
Contribution margin		48,000
Fixed costs		75,500
Operating income		($27,500)

Assume that at the time of their decision, the company felt it could save $37,500 in fixed costs related to this product line. Given this information, do you agree with the companys decision to drop this product line, based on quantitative information only?

(Yes/No). The company would be (better off/worse off) by $________

b) Use the financial information provided in part (a), along with the following information. Assume the company believes it can save just $30,000 in fixed costs if it drops this product line. Additionally, it could rent the newly available space to an outside vendor for $18,000. Under these conditions, should the chair manufacturer keep or drop this product line? (Enter 0 if no net effect).

Net effect $____________

The company (would be indifferent/would be different): ___________