For the first quarter of 2018, Jorge Limited has four operating segments. The total income from operations is $213,000.

The results are as follows:

                                                                              SEGMENTS (000 of dollars)

                                                 One             Two         Three         Four

Sales                                      $ 250             $ 200.0    $ 500       $ 450.0   

Variable Costs:

Cost of Goods Sold                 140              172.8       240            187.5

Selling & Administrative         30                  36.0        30              30.0

Contribution Margin                 80                ( 8.8)        230             232.5

Fixed Costs:

Cost of Goods Sold                 60                19.2          60               62.5

Selling & Administrative         45               24.0           30                    20.0

Net Income                          $ (25)         $(52.0)        $ 140             $ 150.0

If a segment is discontinued, about 50% of the fixed costs and expenses for that segment would be saved.

Top management is considering the discontinuation of one or both of the unprofitable segments. Most of the managers agree that both segments should be discontinued.

INSTRUCTIONS:

1. Should Jorge Limited eliminate one or both of the unprofitable segments? Explain. Prepare analyzes to support your answer.

2. Compare the total income for all four segments with the total income if segment Two was eliminated. Determine the difference and explain the difference.