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The fixed v digital watch line is dropped the

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Unformatted text preview: ropped. The Variable shipping overhead and general 5,000 general factory costs general factory overhead and general Commissions 75,000 2 administrative expenses assigned to this product00,000 administrative expenses assigned to this product Contribution margin $ 300,000 wouldfixedreallocated to other product lines. would be reallocated to other product lines. would be expenses wess: L ould General factory overhead $ 60,000 The equipment used to manufacture digital The of line manager Salary equipment used to manufacture digital 90,000 watches has of equipment watches has no resale value or 50,000 alternative use. Depreciation no resale value or alternative use. Advertising - direct 100,000 Should Lovell retain or70,000 Should Lovell retain or drop drop Rent - factory space the digital watch segment? General admin. expenses segment? 30,000 the digital watch Net operating loss Managerial Accounting 400,000 $ (100,000) 12-10 Adding/Dropping Segments A Contribution Margin Approach Contribution Margin Solution Contribution margin lost if digital watches are dropped Less fixed costs that can be avoided Salary of the line manager $ 90,000 Advertising - direct 100,000 Rent - factory space 70,000 Net disadvantage Re Re tta aii n n Managerial Accounting $ (300,000) 260,000 $ (40,000) Adding/Dropping Segments 12-11 Comparative Income Approach Comparative Income Approach Solution IIff the digital watch line is Keep Drop the digital watch line is Digital Digital dropped, the company d...
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