Keep-or-Drop Decision

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

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".

$________

Should Petoskey keep or drop Conway?

Conway Total Sales revenue Alanson $1,280 1,115 Boyne $185 45 $285 $1,750 Less: Variable expenses 228 1,388 Contribution margin $165 $140 $57 $362 Less direct fixed expenses: Depreciation 50 15 14 79 Salaries 95 85 276 Segment margin $20 $40 $(53)