30. Product Line Decision. The following segmented annual income statement is for Hathaway Manufacturing, Inc.:

    Management is concerned about the significant losses associated with the computers product line and would like to drop this product line. Allocated fixed costs are assigned to product lines based on sales. If the computers product line is eliminated, total allocated fixed costs are assigned to the remaining product lines, and all variable and direct fixed costs for the computers product line will be eliminated.

    Required:

    1. Perform differential analysis using the format presented in Table 7.6, Table 7.7, and Table 7.8. Assume keeping all product lines is Alternative 1, and dropping the computers product line is Alternative 2.

    2. Which alternative is best? Explain.

    3. Summarize the result of dropping the computer product line using the format presented in Table 7.9.

    4. Explain what happened to the profitability of the furniture product line as a result of dropping the computers product line.

Differential Analysis (Keep all product lines) Alternative 1 Total (Drop Computers) Alternative 2 Total Differential Amount $1,125,000 Alternative 1 is: Higher Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit (loss) Differential Amount Correct Incorrect Incorrect Incorrect Alternative 1 Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Use the dropdown menu to select the best answer from the options below. a. Dropping the computer line is best because profit would decrease. 6. Keeping all product lines is best because profit would decrease. c. Keeping all product lines is best because profit would increase. d. Dropping the computer line is best because profit would increase