Question

Bramble Corp. produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:

	Wood		Aluminum		Hard Rubber		Total
Sales	$480000		$180000		$65000		$725000
Variable expenses	315000		120000		58000		493000
Contribution margin	165000		60000		7000		232000
Fixed expenses	75000		35000		22000		132000
Net income (loss)	$90000		$ 25000		$(15000)		$100000

Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

$115000

$120000

$115000

$93000

Answer 1

Answer)

Statement showing impact on Net Income if hard rubber line is discontinued

(Amount in $)

	Wood	Aluminum	Hard Rubber	Total
Sales	480,000	180,000	-	660,000
Variable Expenses	315,000	120,000	-	435,000
Contribution Margin	165,000	60,000	-	225,000
Fixed Expenses	75,000	35,000	22,000	132,000
Net Income(Loss)	90,000	25,000	(22,000)	93,000

If Rubber line is dropped the Total Net income of the company will be $ 93,000.

Note: If the hard rubber line if dropped, sales revenue and variable expenses will be Nil. However, since the fixed expenses are unavoidable, the company will bear the share fixed expenses on Hard Rubber line.