Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $300 $1,765 Less: Variable expenses 1,115 45 225 1,385 Contribution margin $ 165 $140 $ 75 $ 380 Less direct fixed expenses: Depreciation 50 15 10 75 Salaries 95 85 80 260 Segment margin $ 20 $ 40 $ (15) $ 45 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Required: Conceptual Connection: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather than "15". Decrease $

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Business

Simeon Warren

20 September, 14:55

Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $300 $1,765 Less: Variable expenses 1,115 45 225 1,385 Contribution margin $ 165 $140 $ 75 $ 380 Less direct fixed expenses: Depreciation 50 15 10 75 Salaries 95 85 80 260 Segment margin $ 20 $ 40 $ (15) $ 45 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Required: Conceptual Connection: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000" rather than "15". Decrease $

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Caroline Mcintyre · Answer 1

Solution:

A decision to retain or drop is a business choice to determine whether to hold or reduce the drug. All related costs shall be weighed for decision-making.

The effect on the benefit from the decrease in the Conway price is estimated as follows:

Particular Alanson Boyne Conway Total

Sales revenue 1,280,000 185,000 1,465,000

Less: variable expenses (1,115,000) (45,000) (1,160,000)

Contribution margin 165,000 140,000 305,000

Less: direct fixed expenses

Depreciation 50,000 15,000 13,000 78,000

Salaries 95,000 85,000 120,000 300,000

Segment margin 20,000 40,000 (133,000) (73,000)

Existing margin 35,000

Profit will reduce by 108,000