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RFL manufactures three types house ware products-plastic, melamine and steel. Data on sales and expenses for the past quarter follow: Product lines Plastic Melamine Steel
RFL manufactures three types house ware products-plastic, melamine and steel. Data on sales and expenses for the past quarter follow: Product lines Plastic Melamine Steel Total Sales 250,000 150,000 100,000 500,000 Variable expense 100,000 50,000 60,000 210,000 Contribution margin 150,000 100,000 40,000 290,000 Fixed expenses: 59,000 25,000 16,000 100,000 Salaries of product- line managers Utilities 1,000 1,000 2,000 4,000 Rent 10,000 6,000 4,000 20,000 Insurance 2,000 16,000 14,000 32,000 2,000 4,000 4,000 10,000 Depreciation-equipment Allocated common fixed expense 30,000 18,000 12,000 60,000 Total fixed expense 104,000 70,000 52.000 226,000 Net operating income(loss) 46,000 30.000 (12,000). 64,000 Management is concerned about the continued losses shown by the steel product line and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce steel has no resale value and does not wear out. Required: (3+1+5=9) 1. What is the financial advantage (disadvantage) per quarter of discontinuing the steel product line? 2. Should the production and sale of steel be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines
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