Conceptual Connection: Estimate the impact on profit that would result from dropping Wallon. Enter amount in full, rather than in thousands. For example, "15000" rather than "15".
Keep-or-Drop Decision
Charlevoix Company produces three products: Torch, Elk, and Walloon. A segmented income statement, with amounts given in thousands, follows:
| Line Item Description | Torch | Elk | Walloon | Total |
|---|---|---|---|---|
| Sales revenue | $1,280 | $185 | $315 | $1,780 |
| Less: Variable expenses | 1,115 | 45 | 252 | 1,412 |
| Contribution margin | $165 | $140 | $63 | $368 |
| Less direct fixed expenses: | ||||
| |
50 | 15 | 10 | 75 |
| Advertising | 95 | 85 | 76 | 256 |
| Segment margin | $20 | $40 | $(23) | $37 |
Direct fixed expenses consist of depreciation and advertising. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold.
Assume that, each of the three products has a different marketing campaign whose advertising would be eliminated if the associated product were dropped.
Assume that 30% of the Torch customers choose to buy from Charlevoix because it offers a full range of products, including Walloon. If Walloon were no longer available from Charlevoix, these customers would go elsewhere to purchase Torch.
Required:
1. Conceptual Connection: Estimate the impact on profit that would result from dropping Wallon. Enter amount in full, rather than in thousands. For example, "15000" rather than "15".
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