Appendix Four (Drop of Retain a Product Line) Objective: Determine whether to Drop or Retain a segment, early evening dinners. As part of this process, a Contribution Margin Income Statement needs to be prepared. Scenario: Using the Income Statement in Appendix One, prepare the Contribution Margin Income Statement, given the following information related to the companys expenses: Cost of Goods Sold is 50% variable and 50% fixed Operating Expenses are 3/4 variable and 1/4 fixed Administrative Expenses are $2,000 variable and $20,000 fixed Rent Expense is all fixed HINT: Please note that the operating profit that you calculate in your Contribution Margin Income Statement will be the same as the Profit Before Income Tax in the Income Statement provided in Appendix One (in other words, in the student template, the two fields that are shaded in yellow should be the same amount). The financials by segment are then provided in the student template. It is believed that if the segment of early evening dinners is dropped, that half of the fixed expenses of that segment would remain. As well, it is believed that if the segment of early evening dinners is dropped, sales of lunches would increase by 10%. Complete the template accordingly and determine whether this segment should be dropped.

D E F G H J K M N A B 1 2 3 C FFT Corporation Income Statement Year Ended December 31, 2020 4 5 Net sales 350,000 6 Cost of goods sold 210.000 7 Gross profit 140,000 8 Expenses 9 10 Operating expenses Administration expense 40,000 22,000 11 Rent expense 15.000 12 Total expenses 77.000 13 Profit before income tax 63,000 14 Income tax expense 20,000 15 Profit 43,000 16 17 18 19 20 21 FFT Corporation Contribution Margin Income Statement Year Ended December 31, 2020 22 23 Net sales 24 Variable Expenses 25 Cost of goods sold 26 Operating Expenses 27 Administrative Expenses 28 Rent expense 29 30 Contribution Margin 31 32 Fixed Expenses $ $ Marks CURRENT Marks Lunch Afternoon Snacks Early evening Dinners Total Net sales $ 200,000 $ 100,000 $ 50,000 $350,000 Less: Variable Expenses $ 80,000 $ 40,000 $ 17,000 $ 137,000 Contribution Margin $ 120,000 $ 60,000 $ 33,000 $213,000 Less: Fixed Expenses $ 75,000 $ 50,000 $ 25,000 $150,000 Net operating profit $ 45,000 $ 10,000 $ 8,000 $ 63,000 33 Cost of goods sold 34 Operating Expenses 35 Administrative Expenses 36 Rent expense $ 37 38 Operating profit (Profit before income tax) $ 0 39 IF DROP EARLY EVENING DINNERS Lunch Net sales Less: Variable Expenses Contribution Margin Less: Fixed Expenses Net operating profit Afternoon Snacks Early evening Dinners Total