Sure-Check Company, a calculator manufacturer, is considering dropping one of its calculator product lines because of consistent losses from this model over the past three years. The recent poor performance of this product (known as model A) is shown here (in thousands).

Revenue and fixed costs (controllable by segment managers) are expected to decrease again in 2001 by $\$ 200,000$ and $\$ 25,000$, respectively, whereas direct materials and direct labor are expected to increase by 5 percent unless the production department purchases a new attachment with a 2 -year life for $\$ 150,000$. This new attachment would replace an attachment purchased only two years ago for $\$ 200,000$ with, at that time, an expected 4 -year life. If the new attachment is purchased, direct materials and direct labor will not increase in 2001.
1. Assuming that the new attachment is not purchased, should Sure-Check Company continue to manufacture and sell the model A calculator? Explain.
2. Should the new attachment be purchased? Explain.
3. How, if at all, would the production capacity made available by discontinuing model $\mathrm{A}$ affect your decision regarding the purchase of the attachment?
4. What qualitative factors could affect your responses to (1) and (2)?

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1998 1999 2000 Revenue (average price $100 per unit) $14,600 $14,400 $14,200 Variable costs: Direct materials cost ($40 per unit $ 5,840 $ 5,760 $ 5,680 Direct labor cost ($20 per unit) 2,920 2,880 2,840 Variable manufacturing overhead costs ($15 per unit) 2,190 2,160 2,130 Selling expenses (10% of sales) 1,460 1,440 1,420 Total variable costs. $12,410 $12,240 $12,070 Contribution margin $ 2,190 $ 2,160 $ 2,130 Less fixed costs controllable by segment managers.... 2,022 1,997 1,972 Segment margin... $ 168 $ 163 $ 158 Less company indirect fixed costs. 438 432 426 Operating loss.. $ (270) $ (269) $ (268)