4- You are the Management Accountant for a well-known manufacturer of titanium bike frame. The companys hottest product is the AX, which provides most of the firms revenue. Management is considering dropping the AL product line, which has not turned a profit for two consecutive years. The CFO comes to you and asks what would do given the following data: Operating Statements AX AL Total

Products manufactured and sold

Operating statement	AX	AL	Total
Products manufactured and sold	20	24
Sales revenue	$30 000	$43 200	$73 200
Direct materials	(2 000)	(8 400)	(10 400)
Direct labor	(4 000)	(7 680)	(11 680)
Variable manufacturing overhead	(1 000)	(4 800)	(5 800)
Fixed manufacturing overhead	(2 000)	(17 400)	(19 400)
Sales and Administrative costs	(2 000)	(6 000)	(8 000)
Operating profit	$19 000	$(1 080)	$17 920

Note: Approximately 20% of the fixed manufacturing overhead is directly related to (i.e., created within) each segment.

Instructions

1. Distinguish between direct and indirect costs and find the segment profit for each product.
2. Determine the gain or loss that the firm would incur if it dropped the AL product line. What figure would you provide the CFO?
3. Explain your recommendation to continue or discontinue the product line AL.