avapei Company produces three products: A, B, and C. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses include depreciation on equipment dedicated to the product lines of $20,000 for A, $120,000 for B, and $25,000 for C. None of the product line equipment can be sold, and would have to be disposed of if the product line were dropped.RequiredWhat impact on profit would result from dropping Product C?Suppose that 10 percent of the customers for Product B choose to buy from Yavapei because it offers a full range of products, including Product C. If C were no longer available from Yavapei, these customers would go elsewhere to purchase B. Now what is the impact on profit if Product C is dropped? Sales revenueLess: Variable expensesContribution marginLess: Direct fixed expensesSegment marginLess: Common fixed expensesOperating incomeA$1,8001,350$ 450150$300B$1,6001,000$ 600300$ 600с$210140$ 7080$(10)Total$3,6102,490$1,120530$ 590340$ 250

Here in this case we are required to determine whether to drop product or not. For determing that,…

Answered: avapei Company produces three products:…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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avapei Company produces three products: A, B, and C. A segmented income statement, with amounts given in thousands, follows:

Direct fixed expenses include depreciation on equipment dedicated to the product lines of $20,000 for A, $120,000 for B, and $25,000 for C. None of the product line equipment can be sold, and would have to be disposed of if the product line were dropped.

Required

What impact on profit would result from dropping Product C?
Suppose that 10 percent of the customers for Product B choose to buy from Yavapei because it offers a full range of products, including Product C. If C were no longer available from Yavapei, these customers would go elsewhere to purchase B. Now what is the impact on profit if Product C is dropped?

Sales revenue
Less: Variable expenses
Contribution margin
Less: Direct fixed expenses
Segment margin
Less: Common fixed expenses
Operating income
A
$1,800
1,350
$ 450
150
$300
B
$1,600
1,000
$ 600
300
$ 600
с
$210
140
$ 70
80
$(10)
Total
$3,610
2,490
$1,120
530
$ 590
340
$ 250

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