Chocolate Other Candy Fudge Total
Sales $40,000 $25,000 $35,000 $100,000
Variable expenses 26,000 15,000 19,000 60,000
Contribution margin 14,000 10,000 16,000 40,000
Other costs 2,000 3,000 2,000 7,000
Segment margin 12,000 7,000 14,000 33,000
Allocated avoidable costs 3,000 3,000 2,000 8,000
Segment income 9,000 4,000 12,000 25,000
Allocated corporate costs 5,000 5,000 5,000 15,000
Corporate profit $4,000 $(1,000) $7,000 $10,000
a. Do you recommend dropping the Other Candy product line? Why or why not?
b. If the Chocolate product line had been discontinued, the short-term effect on corporate profits would be a decrease of what amount?
c. Assume that the Fudge product line has been discontinued and long-term capacity has had time to adjust. The projected long-term effect of this action on annual corporate profits would be a decrease of what amount?
d. Assume that an advertising campaign could increase revenues for any of the products by $15,000. To maximize corporate profits, which product line should receive the advertising dollars? Why?
e. How would you change the format of the segment margin statement above to make it more understandable?
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