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 $345. $1,810

Less: Variable expenses 1,115 45 276 1,436

Contribution margin $165 $140 $69 $374

Less direct fixed expenses:

Depreciation. 50 15 14 79

Salaries 95 85 84 264

Segment margin $20 $40 $(29) $31

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 be eliminated 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".

1) Increase or decrease $________________

2) keep or drop