Keep-or-Drop Decision

Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:

Alanson Boyne Conway Total

Sales revenue $1,280 $185 $300 $1,765

Less: Variable expenses 1,115 45 225 1,385

Contribution margin $ 165 $140 $ 75 $ 380

Less direct fixed expenses:

Depreciation 50 15 10 75

Salaries 95 85 80 260

Segment margin $ 20 $ 40 $ (15) $ 45

Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold.

Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped.

Required:

CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather than "15".

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