Exercise #5

One of Solana Ltd's product line has been unprofitable for the past two years. The latest income statement for the product line is as follows:

Sales revenue		231,000
Less: Cost of sales		101,000
Gross profit		130,000
Operating expenses
Depreciation	33,000
Insurance	17,000
Manager salary	14,000
Supplies	21,000
Utilities	13,000
Wages	61,000
Total operating expenses		159,000
Profit or loss		(29,000)

In relation to the operating expenses, utilities, manager salary and $17,000 of the depreciation expense are allocated to this product line.

Required:

Evaluate whether the unprofitable product line should be disestablished from a financial standpoint. Support your answer with relevant costs and benefit analysis.