Answer:
relevant costs and expenses for segment A:
Sales revenue $330,000
COGS ($242,000)
Commissions <u> ($30,000)</u>
Contribution margin $58,000
Advertising expense <u> ($6,000)</u>
Relevant Oper. income $52,000
General fixed operating expenses are not relevant since they will occur whether or not segment A continues to operate.
If the company discontinues segment A, then its operating profit will be:
Sales revenue $980,000
COGS ($374,000)
Commissions <u> ($88,000)</u>
Contribution margin $518,000
Fixed oper. expenses ($276,000)
Advertising expense <u> ($20,000)</u>
Operating income $222,000
If the company keeps segment A, then its operating profits will be:
Sales revenue $1,310,000
COGS ($616,000)
Commissions <u> ($118,000)</u>
Contribution margin $576,000
Fixed oper. expenses ($276,000)
Advertising expense <u> ($26,000)</u>
Operating income $274,000
It is better to keep segment A.