Marinette Company makes several products, including canoes. The company has been
ID: 2431809 • Letter: M
Question
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.
1. If canoes are discontinued, calculate the net income lost or gained.
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)
Explanation / Answer
Incremental analysis: Continue Dropping Net Increase/Decrease in Income Sales revenue 2,000,000 0 -2000000 Variable cost: Material -450000 0 450000 Labour -500000 0 500000 Variable Overheads -300000 0 300000 variable Selling and Admin -200000 0 200000 Fixed cost: Direct Fixed cost -375000 0 375000 Indirect fixed cost -300000 -300000 0 Net Incremental Income/(loss) 125000 -300000 -175,000 Hence, the segment shall not be dropped as it leads incremental loss of $175000.
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