Keep-or-Drop for Service Firm, Complementary Effects, Traditional Analysis Devern Assurance Company provides both property and automobile insurance. The projected income statements for the two products are as follows: Property Insurance Automobile Insurance Sales Less variable expenses $4,200,000 $12,000,000 3,830,000 9,600,000 Contribution margin $370,000 $2,400,000 Less direct fixed expenses 400,000 500,000 Segment margin $(30,000) $1,900,000 Less common fixed expenses (allocated) 100,000 Operating income (loss) 200,000 $1,700,000 $(130,000) The president of the company is considering dropping the property insurance. However, some policyholders prefer having their property and automobile insurance with the same company, so if property insurance is dropped, sales of automobile insurance will drop by 12 percent. No significant non-unit-level activity costs are incurred. Required: 1. If Devern Assurance Company drops property insurance, by how much will income increase or decrease? Check My Work by Previous Next Emall Instructor Save and Exit Submit Assignment for Gra As a supporting computation, prepare a segmented income statement for the keep-or-drop decision. Devern Assurance Company Keep or Drop For Service Firm Segmented Income Statement Keep Drop 2. Assume that dropping all advertising for the property insurance line and increasing the corporate advertising budget by $450,000 will increase sales of property insurance by 10 percent and automobile insurance by 8 percent. Prepare a segmented income statement that reflects the effect of increased advertising. If an amount is zero, enter "0". Devern Assurance Company Keep or Drop For Service Firm Segmented Income Statement Property Insurance Automobile Insurance Total Check My Work Previous Next > 88 2. Assume that dropping all advertising for the property insurance line and increasing the corporate advertising budget by $450,000 will increase sales of property insurance by 10 percent and automobile insurance by 8 percent. Prepare a segmented income statement that reflects the effect of increased advertising. If an amount is zero, enter "0". Devern Assurance Company Keep-or-Drop For Service Firm Segmented Income Statement Property Insurance Automobile Insurance Total Should advertising be increased? Check My Work Previous Next