Question

In: Accounting

Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe...

Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe segment and is considering dropping that product line. The following information is available regarding its canoe segment.

MARINETTE COMPANY
Income Statement—Canoe Segment
  Sales $ 2,000,000   
  Variable costs
        Direct materials $ 450,000   
        Direct labor 500,000   
        Variable overhead 300,000   
        Variable selling and administrative 200,000   
  Total variable costs 1,450,000   
  Contribution margin 550,000   
  Fixed costs
        Direct 375,000   
        Indirect 300,000   
  Total fixed costs 675,000   
  Net income $ (125,000)
1.

If canoes are discontinued, calculate the net income lost or gained.

    

Solutions

Expert Solution

Answer:-

Sales

Total

Avoidable Expenses

Unavoidable Expenses

Sales

$2,000,000   

$2,000,000   

Direct materials

$450,000   

$450,000   

Direct labor

$500,000   

$500,000   

Variable overhead

$300,000   

$300,000   

Variable selling and administrative

$200,000   

$200,000   

Total variable costs

$1,450,000   

Contribution margin

$550,000   

Fixed costs

        Direct

$375,000   

        Indirect

$300,000   

Total

$175,000

$300,000   

In Case, the net result if the canoe segment is eliminated is reducing the company income by $175,000 and they still have unavoidable expenses of $300,000. Therefore, they should not discontinue the canoe segment


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