434 Chapter 9 EXERCISE 9-3 Deciding Whether to Drop or Retain a Segment [LO1 - CC3] losses on its bilge pump product line for several years. The most recent quarterly income statement for the Thalassines Kataskeves, S.A., of Greece, makes marine equipment. The company has been experiencing bilge pump product line follows: br is THALASSINES KATASKEVES, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 950,000 340,000 46,000 14.000 400,000 550,000 290,000 Sales Less: Variable expenses: Variable manufacturing expenses Sales commissions Shipping Total variable expenses Contribution margin Less: Fixed expenses: Advertising Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department expenses Total fixed expenses Net operating loss 90,000 115,000* 38,000 18,000 65,000 616,000 E(66,000 Common costs allocated on the basis of machine-hours *Common costs allocated on the basis of sales dollars The currency in Greece is the euro, denoted by . The discontinuance of the bilge pump product line would not affect sales of other product lines and would have no noticeable effect on the company's total general factory overhead or total purchasing department expenses. Required: Would you recommend that the bilge pump product line be discontinued? Support your answer with EXERCISE 9-4 Determining Whether to Make or Buy [LO1 - CC4] Han Products manufactures 55,500 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is as follows: Direct materials Direct labour Variable overhead Fixed overhead Total cost per part $ 6.66 18.50 4.44 16.65 $46.25 An outside supplier has offered to sell 48,000 units of part S-6 each year to Han Products for $38.85 per pari. If Han Products accepts this offer, the facilities now being used to manufacture part 5-6 could be rented to another company at an annual rental of $148,000. However, Han Products has determined that 30% of the fixed overhead being applied to part 5-6 will be avoided if part 5-6 is purchased from the outside supplier. Required: 1. Prepare computations to show the net dollar advantage or disadvantage of accepting the outside supplier's offer. 2. What is the annual rental value at which the company will be indifferent between the two options