Question 4. Relevant Information/Differential Cost 25%

The following information is provided for Cruisers, Inc. which manufactures recreational watercraft ($ 000):

Total Sailboat Motorboat Repair Parts

Company Division Division Division

Sales $2,240 $1,280 $640 $320

Variable Expenses 960 512 288 160

Contribution Margin 1,280 768 352 160

Direct Fixed Expenses 680 400 160 120

Allocated Fixed Expenses 448 256 128 64

Operating Income $152 $112 $64 $(24)

Management believes that the Repair Parts Division should be dropped, thereby increasing the companys Operating Income by $24,000.

1. Prepare a cost analysis utilizing relevant/differential cost methodology. (15 pts)

2. Should the Repair Parts Division be dropped? Yes or No. Explain your answer. (10 pts)