Question 5. Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement:

Discontinuing the overnight cases would not affect the company's sales of its other product lines, its total general factory overhead, or its total purchasing department expenses.

Required:

Would you recommend that the company discontinue the manufacture and sale of overnight cases? Support your answer with appropriate computations.

\begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|c|}{DexterProducts,Inc.IncomeStatement-OvernightCasesFortheQuarterEndedJune30} \\ \hline & & $450,000 \\ \hline Variable expenses: & & \\ \hline & $130,000 & \\ \hline & 48,000 & \\ \hline & 12,000 & \\ \hline Total variable expenses...................... & & 190,000 \\ \hline Contribution margin ............... & & 260,000 \\ \hline Fixed expenses: & & \\ \hline & 21,000 & \\ \hline General factory overhead & 104,000 & \\ \hline Depreciation of equipment (no resale value) .......... & 36,000 & \\ \hline & 110,000 & \\ \hline & 9,000 & \\ \hline & 50,000 & \\ \hline Total fixed expenses & & 330,000 \\ \hline Net operating loss . & & $(70,000) \\ \hline Allocatedonthebasisofmachine-hours.tAllocatedonthebasisofsalesdollars. & & \\ \hline \end{tabular}