Assignment
Determine if the product line should be dropped given the following information.
-Salaries expense relates directly to the employees working in the product line and employees would be discharged if the product line is dropped.
-The advertising expenses represents the company as a whole and are not dependent on the individual segment line
-Rent expense will be reduced by 5,000 due to decreasing lease space
-The utilities represent the cost for the company as whole and not individual product lines
|
Contribution Margin
|
45,000
|
|
Salaries
|
30,000
|
|
Advertising
|
20,000
|
|
Rent
|
10,000
|
|
Utilities
|
20,000
|
a) Should not be dropped since the lost contribution margin is $10,000 greater than the avoided fixed expenses.
b) Should not be dropped since the lost contribution margin is $30,000 greater than the avoided fixed expenses.
c) Should be dropped since the lost contribution margin is $10,000 less than the avoided fixed expenses.
d) Should be dropped since the lost contribution margin is $20,000 less than the avoided fixed expenses.