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 COMPANYIncome Statement—Canoe SegmentSales $ 3,300,000 Variable costs Direct materials $ 710,000 Direct labor 760,000 Variable overhead 560,000 Variable selling and administrative 330,000 Total variable costs 2,360,000 Contribution margin 940,000Fixed costs Direct 635,000 Indirect 560,000 Total fixed costs 1,195,000 Net income $ (255,000)Required:1. If canoes are discontinued, calculate the net income lost or gained.

Answer 1

Answer:

decrease by 305,000 dollars

Explanation:

Sales            3,300,000

Variavle cost:

materials          710,000

labor                760,000

overhead        560,000  

S&A                330,000    

total             (2,360,000)

contribution    940,000

fixed cost:

tracable               (635,000)

operating income 305,000

allocated              (560,000)

net                         (255,000

The canoes division absorbs 305,000 of the common fixed cost

If discountinued the company as a whole will see their net income decreases by this amount. In the short run, the company should only discontinued a project or division when it is not able to afford their own cost. That is not the case, canoes division afford their own cost is the allocated from other activities of the company that generates this loss.