Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:

Alanson

Boyne

Conway

Total

Sales revenue

$1,280

$185

$345

$1,810

Less: Variable expenses

1,115

45

276

1,436

Contribution margin

$165

$140

$69

$374

Less direct fixed expenses:

Depreciation

50

15

10

75

Salaries

95

85

80

260

Segment margin

$20

$40

$(21)

$39

Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold.

Assume that each of the three products has a different supervisor whose position wouldremainif the associated product were dropped.

Required:

CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather than "15".

Decrease$fill in the blank 2

Should Petoskey keep or drop Conway?

Keep

Feedback

Look at contribution margin and adjust for dropping product line. Consider the sunk cost and that it is not relevant.