Outdoor Luggage Corporation produces hard-sided luggage for sports equipment. Financial data for three of the corporation's most popular products appear below.

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the fishing guards and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce fishing guards has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the fishing guard model?

2. Should the production and sale of fishing guards 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.

Ski Guard Golf Fishing Total Guard Guard $924,000 $262,000 $ 404,000 $250,000 476,000 112,000 205,000 159,000 448,000 150,000 199,000 99,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (1033) 69,600 8,800 40,600 20,200 43,300 20,500 7,500 15,300 115, 700 40,700 38,000 37,000 184,800 52,400 80,800 51,600 413, 400 122,400 166,900 124,100 $ 34,600 $ 27,600 $ 32,100 $ (25,100) 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. Totals Ski Guards Golf Guards Fishing Guards 0 0 0 Contribution margin (loss) Traceable fixed expenses 0 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 $ 0 $ 0 $ 0 Net operating income (loss) $ 0