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		$450,000
Less: Variable Expenses
Variable Manufacturing Costs	125,000
Variable Shipping Costs	73,000
Variable Selling Costs	34,000	252,000
Contribution Margin		218,000
Less: Fixed Expenses
General Factory Overhead	94,000
Salary of Line Manager	57,000
Depreciation of Equipment	13,000
Advertising	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		(70,000)

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.