B C E Question 3 10 Marks 25 Minutes Addison Co. has two departments: Nurse, and Hyman, which produce high quality hockey sticks. The company has provide the following information for the month of April: Nurse Hyman Tota Sales S 8,000,000 2,000,000 S 10,060,000 Variable Costs 4,000,060 800,000 4,800,090 Contribution Margin 4,000,000 1,200,000 5,200,000 Fixed Expenses 3,200,000 1,300,000 4,500,000 Operating Income (Loss) 800,000 100,000 700,000 Addison Co. has conducted an analysis of the costs involving Hyman after a poor performance in April and it was determined that the following would occur if the Hyman department ceased operations: 1. $400,000 in fixed expenses of Hyman would be eliminated by ceasing operations. The remaining $900,000 are sunk costs that cannot be recovered. 2. The sales in the Nurse department would increase 11% if Hyman were to cease operations REQUIRED 6 A) What would be the effect on operating income if the Hyman product line is dropped? (5 marks) B) Should the hyman product line be dropped? Briefly explain. (1 mark) C) Unrelated to parts A & B of this question, Addison Co. is considering using the excess wood used in the production of their hockey sticks to create shooting targets. Currently, the company sells the additional wood for $5 per kilogram. If processed into shooting targets, It would cost an additional $4 per unit to process and would use 2kg of wood to create. These shooting targets could sell for $22 per target. Currently, the company has 1,000 kilograms of wood that they sell. 18 Should Addison Co. make these new shooting targets? (4 marks) 19 20 Your Response