Abel Company produces three versions of baseball bats: wood, aluminum, and hard

Question

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

                                              Wood                  Aluminum             Hard Rubber                     Total                  

Sales                                  $500,000                $200,000                 $65,000                   $765,000

Variable expenses                  325,000                  140,000                   58,000                       523,000

Contribution margin                175,000                    60,000                    7,000                       242,000

Fixed expenses                       75,000                    35,000                   22,000                       132,000

Net income (loss)                 $100,000                $ 25,000                $(15,000)                    $110,000

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

Explanation / Answer

if company droped rubber line, overall company net income will reduce by $7,000

Before line drope After line drope Sales $                     765,000 $765,000 - $65,000 = $700,000 Variable expenses $                     523,000 $523,000 - $58,000 = $465,000 Contribution margin $                     242,000 $700,000-$465,000 = $235,000 Fixed expenses $                     132,000 $                                            132,000 Net income (loss) $                     110,000 $235,000-$132,000 = $103,000

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