When Mr. Steve Mcpharland, president and chief executive of Mcpharland, Inc., first saw the segmented income statement below, he flew into his usual rage: "When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!"

*These traceable expenses could be eliminated if the product lines to which they are traced were discontinued.

Required:

Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answers.

Product Lines Total Sales Variable expenses Contribution margin Traceable fixed expenses 98,000 31,000 37,000 30,000 Common expenses, allocated 32,900 18,000 10,500 4400 Operating income (loss) 100 14,000 7,500) $(6,400) $250,000 $100,000 $75,000 $75,000 119,000 350 35,00047000 131,000 63,000 40,000 28,000