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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. $450,000
The following income statement has been prepared for the most recent period for the patio furniture segment of a furniture & home dcor company. $450,000 220,500 229,500 Segment Income Statement Patio Furniture Sales Less: Variable expenses Variable manufacturing costs $180,000 Variable shipping costs 13,500 Commissions 27,000 Contribution margin Less: Fixed expenses General factory overhead 73,500 Salary of line manager 35,000 Depreciation of equipment 54,000 Advertising 100,000 Factory rent 92,000 General admin. expenses 68,000 Operating income / (loss) 422,500 (193,000) 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 30% if the patio furniture segment is dropped. If the company drops this segment, it will gain a contribution margin of $19,000 by manufacturing other products. The company will continue to pay rent to manufacture other products. What is the contribution margin lost if the patio furniture segment is dropped? (1 mark) What are the total fixed expenses that can be avoided if the patio furniture segment is dropped? (4 marks) What is the contribution margin gained if the company drops the patio furniture segment? (1 mark) What is the net advantage or disadvantage of dropping this segment? (1 mark) Enter a disadvantage/loss as a negative number. Negative numbers should be entered with a negative sign, not brackets. Should the patio furniture segment be kept or dropped? (1 mark) The patio furniture segment should be kept. The patio furniture segment should be dropped
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