Question
Dalton Corporation is analyzing product line feasibility. They allocate corporate overhead of $1,800 based on Direct Labor dollars. The President believes he can increase corporate
Dalton Corporation is analyzing product line feasibility. They allocate corporate overhead of $1,800 based on Direct Labor dollars. The President believes he can increase corporate performance by eliminating unprofitable products.
| Product A | Product B | Product C | Product D |
Net Sales | 1,100 | 800 | 1,250 | 1,500 |
Direct Labor | (500) | (600) | (400) | (600) |
Direct Materials | (150) | (300) | (125) | (150) |
a) Prepare a Contribution Margin Income Statement based on all four products and determine if any product lines should be dropped.
b) Prepare a Contribution Margin Income Statement to show what would happen if Dalton does drop a product line.
c) Does Daltons operational performance increase if they drop a product line?
d) Should Dalton drop their unprofitable product line(s)?
e) What is this an example of?
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