Question
The Michael Scott Paper Company manufactures five types of paper.Last year, they generated net operating income of $40,000. The following information was taken from last
The Michael Scott Paper Company manufactures five types of paper.Last year, they generated net operating income of $40,000. The following information was taken from last year's income statement segmented by type (brackets indicate a negative amount):
Bond
Coated
Ledger
Index
Tag
Contribution margin
$(2,000)
$45,000
$35,000
$50,000
$162,000
Segment margin
$(16,000)
$(5,000)
$7,000
$10,000
$94,000
Allocated common fixed expenses
$10,000
$10,000
$10,000
$10,000
$10,000
Segment margin less allocated common fixed expenses
$(26,000)
$(15,000)
$(3,000)
$0
$84,000
Michael Scott Paper Company expects similar operating results for the upcoming year. If they want to maximize its profitability in the upcoming year, which paper type(s) should theydiscontinue?
A.No papershould be discontinued
B.Bond, Coated, and Ledger
C.Bond and Coated
D.Ledger, Index, andTag
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