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Orion group manufactures three types products-pharmaceuticals, footwear and furniture. Data on sales and expenses for the past year follow: Sales Pharmaceuticals Furniture Footwear Total $62,500
Orion group manufactures three types products-pharmaceuticals, footwear and furniture. Data on sales and expenses for the past year follow: Sales Pharmaceuticals Furniture Footwear Total $62,500 25,000 37,500 125,000 25,000 15,000 12,500 52,500 Variable expense Contribution margin 37,500 10,000 25,000 72,500 Fixed expenses: Salaries of product- line managers 14,750 4,000 6,250 25,000 Utilities 250 500 250 1,000 Rent 2,500 1,000 1,500 5,000 500 3,500 4,000 8,000 Advertising Depreciation- equipment 500 1,000 1,000 2,500 Allocated common 7,500 3,000 4,500 15,000 fixed expense 26,000 17,500 56,500 Total fixed expense Net operating income(loss) 13,000 (3.000) 11.500 7,500 16,000 Advertising 500 3,500 4,000 8,000 Depreciation- equipment 500 1,000 1,000 2,500 Allocated common fixed expense 7,500 3,000 4,500 15,000 Total fixed expense 26,000 13,000 17500 56,500 Net operating 11,500 (3,000). 7,500 16 000 income(loss) Management is concerned about the continued losses shown by the furniture product line and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce steel has no resale value and does not wear out. Required: (3+1+5=9) 1. What is the financial advantage (disadvantage) per year of discontinuing the furniture product line? 2. Should the production and sale of furniture be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines
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