CHARLES SPORTS EQUIPMENT (Dropping a product line) Charles Sports Equipment manufactures round, rectangular, and octagonal trampolines. Data on sales and expenses fro the past month follow:

Trampoline

Total RoundRectangular Octagonal

Sales $1,000,000$ 140,000 $ 500,000 $ 360,000

Less variable expenses 410,000 60,000 200,000 150,000

Contribution margin 590,000 80,000 300,000 210,000

Less fixed expenses

Advertising-traceable 216,000 41,000 110,00065,000

Depreciation of special equip%u2019t 95,000 20,000 40,000 35,000

Line supervisors%u2019 salaries 19,000 6,000 7,000 6,000

General factory overhead*200,000 28,000 100,000 72,000

Total fixed expenses 530,000 95,000 257,000 178,000

Net operating income(loss)$ 60,000 $ (15,000) $ 43,000 $ 32,000

*A common fixed cost that is allocated on the basis of sales dollars

Management is concerned about the continued losses shown by the round trampolines and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce the trampolines has no resale value. If the round trampoline model is dropped, the two line supervisors assigned to the model would be discharged.

REQUIRED:

1. Should production and sale of the round trampolines be discontinued? The company has no other use for the capacity now being used to produce the round trampolines. Show computations to support your answer.

2. Recast the above data in a format that would be more useful to management in assessing the long-run profitability of the various product lines.