EXERCISE 12-10 Dropping or Retaining a Segment (LO2] Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the fol- lowing contribution format income statement: Dexter Products, Inc. Income Statement-Overnight Cases For the Quarter Ended June 30 $450,000 $130,000 48,000 12,000 190,000 260,000 Sales... Variable expenses: Variable manufacturing expenses Sales commissions Shipping Total variable expenses. Contribution margin Fixed expenses: Salary of product-line manager General factory overhead. Depreciation of equipment (no resale value). Advertising-traceable Insurance on inventories Purchasing department. Total fixed expenses Net operating loss. . 21,000 104,000* 36,000 110,000 9,000 50,000 330.000 $ (70,000) *Allocated on the basis of machine-hours. tAllocated on the basis of sales dollars. Differential Analysis: The Key to Decision Making 561 Discontinuing the overnight cases would not affect the company's sales of its other product lines, its total general factory overhead, or its total purchasing department expenses. Required: Would you recommend that the company discontinue the manufacture and sale of overnight cases? Support your answer with appropriate computations