Question 6 Dover Inc prepared monthly operating income for the month of April below. Additional information related to the month was as follows Line A Line B Line C Sales 87.000 $ 125,000 - $ 220,000 Variable Costs 74.000 89,000 116,000 Contribution Margin 13,000 36,000 104,000 Direct Fixed Expenses 12,000 32,000 75,000 Line Segment Margin 1,000 4,000 29,000 Allocated Fixed Expenses 6.000 6.000 15,000 -5,000 -2,000 14,000 12 13 1 80% of all direct fixed expenses are avoidable if a line is discontinued 14 15 2 Dover allocates common fixed expenses to each line on the basis of sales dollars Allocated fixed expenses are unavoidable. 16 3. The controller for the company estimated that discontinuing line A would result in a 15% increase in Line C sales, and discontinuing Line 17 B would result in a 20% increase in Line C sales 18 19 4 April results are representative of what a typical month for the company's operations look like 20 REQUIRED 21 A) Calculate the net benefit or loss of discontinuing line A. Use incremental analysis (do not use an income statement) 22 23 B) Calculate the net benefit or loss of discontinuing line B Use incremental analysis (do not use an income statement) 24 25 C) Which line should the company discontinue? Briefly explain