Exercise 12-15 Dropping or Retaining a Segment [LO12-2]

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

Thalassiness Kataskeves, S.A Income Statement Bilge Pump For the Quarter Ended March 31 Sales 440,000 Variable expenses: Variable manufacturing expenses $121,000 54,000 Sales commissions Shipping 19,000 Total variable expenses 194,000 246,000 Contribution margin Fixed expenses: 28,000 Advertising Depreciation of equipment (no resale value) 101,000 49,000* General factory overhead Salary of product-line manager 126,000 14,000 Insurance on inventories 50,000t Purchasing department Total fixed expenses 368,000 $(122,000) Net operating loss *Common costs allocated on the basis of machine-hours. tCommon costs allocated on the basis of sales dollars Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses