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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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