When Mr. Ree Active, president and chief executive of Precious Products Inc., first saw the segmented income statement below, he flew into his usual rage: “When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!”     Product Lines        Total U V W Sales $250,000 $100,000 $75,000 $75,000 Variable expenses 119,000 37,000 35,000 47,000 Contribution margin 131,000 63,000 40,000 28,000 Traceable fixed expenses* 98,000 31,000 37,000 30,000 Common expenses, allocated 32,900 18,000 10,500 4,400 Operating income (loss) $100 $14,000 -$7,500 -$6,400 *These traceable expenses could be eliminated if the product lines to which they are traced were discontinued. Calculate:  Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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When Mr. Ree Active, president and chief executive of Precious Products Inc., first saw the segmented income statement below, he flew into his usual rage: “When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!”

    Product Lines
       Total U V W
Sales $250,000 $100,000 $75,000 $75,000
Variable expenses 119,000 37,000 35,000 47,000
Contribution margin 131,000 63,000 40,000 28,000
Traceable fixed expenses* 98,000 31,000 37,000 30,000
Common expenses, allocated 32,900 18,000 10,500 4,400
Operating income (loss) $100 $14,000 -$7,500 -$6,400

*These traceable expenses could be eliminated if the product lines to which they are traced were discontinued.

Calculate: 

  • Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer. 
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