Question
The following income statement has been prepared for the most recent period for the kitchen segment of a furniture & home dcor company. Segment
The following income statement has been prepared for the most recent period for the kitchen segment of a furniture & home dcor company. Segment Income Statement Kitchen Sales $400,000 Less: Variable expenses Variable manufacturing costs $200,000 Variable shipping costs 16,000 Commissions 20,000 236,000 Contribution margin 164,000 Less: Fixed expenses General factory overhead 48.500 Salary of line manager 26,500 Depreciation of equipment 35,000 Advertising 56,000 Factory rent 53,500 General admin, expenses 87,000 306,500 Operating income/(loss) (142,500) The company is deciding if it should keep or drop the kitchen division based on the following facts: General factory overhead would remain as a fixed expense if the kitchen segment is dropped. General administrative expenses would be reduced by 26% if the kitchen segment is dropped. If the company drops this segment, it will gain a contribution margin of $31,000 by manufacturing other products. The company will continue to pay rent to manufacture other products What is the contribution margin lost if the kitchen segment is dropped? (enter as a positive number) (1 mark Number What are the total fixed expenses that can be avoided if the kitchen segment is dropped? (enter as a positive number) (4 marks) Number What is the contribution margin gained if the company drops the kitchen 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. Negative numbers should be entered with a negative sign, not brackets Number Should the kitchen segment be kept or dropped? (1 mark The kitchen segment should be kept The kitchen segment should be dropped
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