Exercise 12-15 Dropping or Retaining a Segment LO2] Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below: WILLIAMS PRODUCTS INC. Income Statement School Knapsacks For the Quarter Ended June 30 250, 000 Sales Variable expenses Variable manufacturing expenses ales comm1ssions Shipping $70, 000 27, 500 7, 500 Total variable expenses 105, 000 145, 000 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 9, 250 49, 450% 17, 500 51, 150 4, 000 29, 800 t Total fixed expenses 161, 150 Operating loss (16, 150) Allocated on the basis of machine-hours Allocated on the basis of sales dollars. Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company's total general factory overhead or total purchasing department expenses Required a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.) Difference: Keep School Drop School Operating Increase or Decrease) Income Knapsack Knapsack 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 Advertising-traceable Insurance on inventories Purchasing department Total fixed expenses Operating loss b. Would you recommend that the Williams Products Inc line be discontinued? Yes No