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The following income statement has been prepared for the most recent period for the patio furniture segment of a furniture & home dcor company. Segment
The following income statement has been prepared for the most recent period for the patio furniture segment of a furniture & home dcor company. Segment Income Statement Patio Furniture $650,000 $357,500 19,500 45,500 422,500 227,500 Sales Less: Variable expenses Variable manufacturing costs Variable shipping costs Commissions Contribution margin Less: Fixed expenses General factory overhead Salary of line manager Depreciation of equipment Advertising Factory rent General admin. expenses Operating income / (loss) 52,000 37,500 59,000 79,000 49,500 24,500 301,500 (74,000) The company is deciding if it should keep or drop the patio furniture division based on the following facts: General factory overhead would remain as a fixed expense if the patio furniture segment is dropped. General administrative expenses would be reduced by 22% if the patio furniture segment is dropped. If the company drops this segment, it will gain a contribution margin of $35,000 by manufacturing other products. What is the contribution margin lost if the patio furniture segment is dropped? (1 mark) Number What are the total fixed expenses that can be avoided if the patio furniture segment is dropped? (4 marks) Number What is the contribution margin gained if the company drops the patio furniture segment? (1 mark) Number What is the net advantage or disadvantage of dropping this segment? (1 mark) Enter a disadvantage/loss as a negative number. Number Should the patio furniture segment be kept or dropped? (1 mark) O The patio furniture segment should be kept. O The patio furniture segment should be dropped
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