Extreme Sports sells logo sports merchandise. The company is contemplating whether or not to continue its custom embroidery service. All of the companys direct fixed costs can be avoided if a segment is dropped. The information is available for the segments.

	Custom Embroidery		Logo Apparel
Sales	$59,000		$251,000
Variable costs	31,000		111,000
Contribution margin	$28,000		$140,000
Direct fixed costs	23,000		40,000
Allocated common fixed costs	12,000		50,000
Net income	$(7,000)		$50,000

A. What will be the impact on net income if the embroidery segment is dropped?

Net income $fill in the blank 1

DecreaseIncreaseDecrease

B. Assume that if the embroidery segment is dropped, apparel sales will increase 10%. What is the impact on the contribution margin and net income solely for the apparel?

Contribution margin	$fill in the blank 3	DecreaseIncrease
Net income	$fill in the blank 5	DecreaseIncrease

C. Identify one cost that is not relevant in this analysis.

Common fixed costsDirect fixed costsVariable costs