F H j K A B D E G 1 Drop a Segment - Part 1 of 2 2 Condensed monthly operating income data for Senators Inc. for March 2020 is presented below. 3 4 Total Ottawa Store Montreal Store 5 Sales $ 196,600 $ 80,000 $ 116,600 6 Less variable expenses 113,620 32,000 81,620 7 Contribution margin 82,980 48,000 34,980 8 Less traceable fixed expense 60,000 20,000 40,000 9 Segment margin 22,980 28,000 (5,020) 10 Less common fixed expenses 10,000 4,000 6,000 11 Operating Income $ 12,980 $ 24,000 $ (11,020) 12 13 14 15 Additional information regarding Senator's operations includes: 75% of each store's traceable fixed expenses are avoidable if the store were to be closed 16 Senator Inc. allocates common fixed expenses to each store on the basis of sales dollars. 17 18 19 Management estimates that closing the Montreal store would result in a 10% decrease in the Ottawa store sales, while closing the Ottawa store would not affect the Montreal store sales. 20 21 22 The operating results for March are representative of all months. 23 24 (b) 25 Senator Inc. is considering a promotional campaign at the Montreal store that would not affect the Ottawa store. Suppose that increasing monthly promotional expenses at the Montreal store by 5,000 will increase the Montreal store sales by 10% 26 $ 27 28 B D E H 29 Required: 30 (a) 31 A decision by Senator Inc. to close the Montreal store would result in what monthly increase (decrease) in Senator's operating income? 32 33 34 35 36 37 Net increase (decrease) in operating income if Montreal store is closed 38 39 40 (b) By how much would the monthly operating income of Senator's increase (decrease)? 41 42 43 44 45 46 Increase (decrease) in monthly operating income 47 A B F G H j K 51 54 55 a. c. D E E 48 Drop a Segment - Part 2 of 2 Merrickville Windows & Doors manufactures Windows. Doors and Solar Panels in a modern plant located in beautiful, historic Merrickville. The following sales and cost information is available 49 relating to the profitability of these three product lines: 50 Notes Windows Doors Solar Panels Sales $ 750,000 $ 467,000 $ 1,000,000 52 Costs: 53 Direct materials 300.000 205,480 400.000 Direct labour 75,000 56,040 80,000 Material handling 45,000 37,360 60,000 56 Depreciation b. 50,000 48.000 72,000 57 Selling & marketing 75,000 60,000 120.000 58 General administration d. 150.000 100,000 200,000 59 Total costs 695,000 506,880 932.000 60 Operating income S 55,000 $ (39,880) S 68,000 61 62 The following additional information has been made available to you in the corresponding notes. 63 a. Material handling costs vary directly with the number of units produced 64 b. Depreciation is calculated using the straight-line method. 65 c. 50% of the selling and marketing costs consist of corporate marketing costs and are allocated to the product lines 66 based on relative product line sales. The balance of the selling and marketing costs is comprised of variable sales commissions. 67 d. General administration costs include product line manager salaries which are: 68 $ 60,000 for Windows' line 69 $ 50,000 for the Doors' line 70 S 65,000 for the Solar Panels' line 71 The balance is made up of costs that are allocated from head office and are not directly related to the product lines. 72 73 e. If the Doors product line is dropped, then its manager would be transferred to head office where she would replace a S 40.000 per year accounting clerk. 75 74 B D E F G H J K 76 Required: 77 1. Assuming that the plant space taken up by the Doors' product line would remain idle, should the product line be dropped? 78 79 80 81 82 83 84 85 86 87 88 89 90 91 Net advantage (disadvantage) of dropping Doors line 92 93 Should the Doors product line de dropped (yes or no) 94 95 96 2. Assuming that the idle space could be used by the Solar Panels product line and that its sales would increase by 97 $ 300,000 should the company discontinue the Doors product line? 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 Net advantage (disadvantage) of dropping Doors line 113 114 Should the Doors product line be dropped (yes or no) 115