Lamothe Kitchen and Bath makes products for the home, which it sells through major retailers and remodeling (do-it-yourself, or DIY) outlets. One product that has had varying success is a ceiling fan for the kitchen. The fan comes in three sizes (36-Inch, 44-Inch, and 54-Inch), which are designed for various kitchen sizes and cooling requirements. The chief financial officer (CFO) at Lamothe has been looking at the segmented income statement for the fan and is concerned about the results for the 36-inch model.

	36 Inch	44 Inch	54 Inch
Revenues	$ 357,000	$ 557,600	$ 335,400
Variable costs	223,600	277,680	155,500
Fixed costs allocated to products	139,230	217,464	130,806
Operating profit (loss)	$ (5,830)	$ 62,456	$ 49,094

If the 36-Inch model is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the companys total fixed costs would be reduced by 25 percent.

Required:

a. Prepare a differential cost schedule to support your recommendation.

b. Should Lamothe Kitchen and Bath should drop the 36-Inch model product line?

	Status Quo	Alternative: Drop 36-Inch Fan	Difference
Revenue
Less variable costs
Contribution margin
Less fixed costs
Operating profit