Petoskey Company
(amounts given in thousands)
		Alanson	Boyne	Conway	Total
Sales revenue		$ 1,280	$ 185	$ 300	$ 1,765
Less: Variable expenses		$ 1,115	$ 45	$ 225	$ 1,385
Contribution margin		$ 165	$ 140	$ 75	$ 380
Less direct fixed expenses:
Depreciation		$ 50	$ 15	$ 10	$ 75
Supv. Salaries		$ 95	$ 85	$ 80	$ 260
Segment margin		$ 20	$ 40	$ (15)	$ 45
Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment in dedicated to the product lines. None of the equipment can be sold. (This assignment is derived from Exercises 8-43 to 8-45 at the end of Chapter 8.) Make a copy of this Google spreadsheetLinks to an external site. and share it with editing capability with the instructor. Refer to the information for Petoskey Company in the segmented income statement to answer the scenarios below. Scenario 1: Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Estimate the impact on profit that would result from dropping Conway. Explain why Petoskey should keep or drop Conway. Scenario 2: Assume that each of the three products has a different supervisor whose position would be eliminated if the associated product were dropped. Estimate the impact on profit that would result from dropping Conway. Explain why Petoskey should keep or drop Conway. Scenario 3: Continuing with the information from Scenario 2 indicating the supervisor position for Conway would be eliminated if the product is dropped, assume that 20% of the Alanson customers choose to buy from Petoskey because it offers a full range of products, including Conway. If Conway were no longer available from Petoskey, these customers would go elsewhere to purchase Alanson. Estimate the impact on profit that would result from dropping Conway. Explain why Petoskey should keep or drop Conway.