1. DDD Company sells logo sports merchandise and does custom embroidery. They are trying to decide whether or not to continue embroidery. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the embroidery were dropped.

	Embroidery	Apparel Sales
Sales	$120,000	$420,000
Variable Costs	$90,000	$220,000
Contribution Margin	$30,000	$200,000
Direct Fixed Costs	$18,000	$70,000
Allocated Common Fixed Costs	$20,000	$70,000
Total Fixed Costs	$38,000	$140,000
Net Income	($8,000)	$60,000

Required:

1. What would be the impact on profits if embroidery was dropped?

2. Assume that if embroidery was dropped, apparel sales would increase 20%. Now what is the impact on profits if embroidery is dropped?

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