Question 4: Knicks Inc. makes basketball equipment, including basketball hoops. They are currently debating if they should drop this segment of the business. Please use the following information to determine whether Knicks Inc. should drop this segment. Knicks Inc. Basketball Hoop Segment Income Statement Sales 50,000 Less: Variable Expenses Variable Manufacturing Costs 125,000 Variable Shi Costs 73,000 252,000 Variable Selling Costs Contribution Margin 34,000 218,000 Less: Fixed Expenses General Factory Overhead 94,000 Salary of Line Manager Depreciation of Equipment 57,000 13,000 Advertisin 17,000 Rent- Factory Space 24,000 Rent-Warehouse Space 18,000 Variable Selling Costs 23,000 General Admin. Expenses 42,000 288,000 Net Operating Loss Other Information: The Fixed General Factory overhead and Fixed general administrative expenses will not be affected by dropping the basketball hoop segment. The equipment used to manufacture the hoops has no resale value or alternative use, though they are able to reduce factory rent by 80% After dropping the segment, Knicks Inc. will still have to pay $10,000 for warehouse space