The management accountant for Tony's Skateboard Company has prepared the following segmented income statement for each of its three product lines.

Jammer Cruise Flight Total

Sales $400,000 $250,000 $350,000 $1,000,000

Variable expenses 260,000 150,000 190,000 600,000

Contribution margin 140,000 100,000 160,000 400,000

Other costs 20,000 30,000 20,000 70,000

Segment margin 120,000 70,000 140,000 330,000

Allocated avoidable costs 30,000 30,000 20,000 80,000

Segment income 90,000 40,000 120,000 250,000

Allocated corporate costs 50,000 50,000 50,000 150,000

Corporate profit $40,000 $(10,000) $70,000 $100,000

Required:

a. Do you recommend dropping the Cruise product line? Why or why not?

b. If the Jammer product line had been discontinued, the short-term effect on corporate profits would be a decrease of what amount?

c. Assume that the Flight product line has been discontinued and long-term capacity has had time to adjust. The projected long-term effect of this action on annual corporate profits would be a decrease of what amount?

d. Assume that an advertising campaign could increase revenues for any of the products by $15,000. To maximize corporate profits, which product line should receive the advertising dollars? Why?

e. How would you change the format of the segment margin statement above to make it more understandable?