Edge Co. has two departments: East, and West, which produce high quality hockey sticks. The company has provide the following information for the month of April: Sales Variable Costs Contribution Margin Fixed Expenses Operating Income (Loss) East West Total $ 10,000,000 $ 1,500,000 $11,500,000 5,000,000 500,000 5,500,000 5,000,000 1,000,000 6,000,000 4,300,000 1,200,000 5,500,000 700,000 - 200,000 500,000 Edge Co. has conducted an analysis of the costs involving West after a poor performance in April and it 1 was determined that the following would occur if the West department ceased operations: 1. $500,000 in fixed expenses of West would be eliminated by ceasing operations. The remaining 2 $700,000 are sunk costs that cannot be recovered. 3 2. The sales in the East department would increase 9% if West were to cease operations. 4 5 REQUIRED 16 A) What would be the effect on operating income if the West product line is dropped? (5 marks) 7 B) Should the West product line be dropped? Briefly explain. (1 mark) C) Unrelated to parts A & B of this question, Edge 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 $6 per kilogram. If processed into shooting targets, it would cost an additional $5.50 per unit to process and would use 3kg of wood to create. These shooting targets could sell for $25 per target. Currently, the company has 2,000 kilograms of wood that they sell. 3 Should Edge make these new shooting targets? (4 marks) 2