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 Less: Variable Expenses Variable Manufacturing Costs Variable Shipping Costs Variable Selling Costs Contribution Margin Less: Fixed Expenses General Factory Overhead Salary of Line Manager Depreciation of Equipment Advertisin Rent- Factory Space Rent- Warehouse Space 50,000 125,000 73,000 34,000 252,000 218,000 94,000 57,000 13,000 17,000 24,000 18,000 23,000 42,000 Variable Selling Costs 288,000 70,000 General Admin. Expenses 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