e) None of the above en\'s Frozen Delights manufactures five flavors of ice crea

Question

e) None of the above en's Frozen Delights manufactures five flavors of ice cream. The following Wandering Oak information was taken from the company's income statce dicate a negative amount). followino from the company's income statement segmented by flavor (brackets 7. Assume all traceable fixed costs are avoidable, while allocated fixed costs are not. common Elsa Anna Olaf SvenKristoff s2.000 $45,000 $35,000 $5000 $162000 $14,000 $50,000 $28,000 Traceable fixeicosts $40,000 $ 68,000 located common fixed costs $10,000 $10,000 $10,000 $10 From a financial standpoint, which flavor or flavors should Wandering Oaken's disc a) No flavors should be discontinued. b) Sven and Kristoff only c) Elsa only d) Elsa, Anna, and Olaf only. e) Elsa and Anna only ontinue?

Explanation / Answer

Answer: Option e) Elsa and Anna only.

Both Elsa and Anna have negative segment margins which means that discontinuing them will result in an increase in net income by $16000 and $5000 respectively and hence the two should be discontinued. Olaf, Sven and Kristoff on the other hand are generating a segment margin which contributes towards covering part of the allocated common fixed costs and hence should not be discontinued.

Elsa Anna Olaf Sven Kristoff Contribution margin -2000 45000 35000 50000 162000 Traceable fixed costs 14000 50000 28000 40000 68000 Segment margin -16000 -5000 7000 10000 94000

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