Marinette Company makes several products, including canoes. The company has been

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. (Leave no cells blank. Enter zeros where appropriate.) MARINETTE COMPANY Income Statement-Canoe Segment Sales Variable costs $3,900,000 Direct materia1s Direct labor Variable overhead Variable selling and administrative S 830,000 880,000 680,000 390,000 Total variable costS Contribution margin Fixed costs 2,780,000 ,120,000 Direct Indirect 755,000 680,000 Total fixed costs Net income 1,435,000 $ (315,000) 1. If canoes are discontinued, calculate the net income lost or gained.

Explanation / Answer

Solution:

1) Calculation of the Net Income Lost or Gained, if Canoes are Discontinued:

If the Segment is Eliminated, the Net Income will be lower by $365,000.

2) No, the Canoe Segment should be kept, as its contribution margin of $1,120,000 is greater than its direct fixed costs (avoidable fixed costs) of $775,000.

Keep the segment Eliminate the segment Sales $3,900,000 $0 Costs and expenses: Direct materials $830,000 $0 Direct labor $880,000 $0 Variable manufacturing overhead $680,000 $0 Variable selling and administrative expenses $390,000 $0 Direct fixed costs $755,000 $0 Indirect fixed costs $680,000 $680,000 Total costs and expenses $4,215,000 $680,000 Net income (loss) ($315,000) ($680,000)

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