Transcribed Image Text: Shown below is a segmented income statement for ckory Company’s Kitchen Set product lines: Teflon Spatula Roaster Total Sales Revenue 400,000 200,000 300,000 $ 900,000 Less: Variable

Transcribed Image Text: Shown below is a segmented income statement for ckory Company’s Kitchen Set
product lines:
Teflon
Spatula
Roaster
Total
Sales Revenue
400,000
200,000
300,000 $
900,000
Less: Variable Expenses
Contribution Margin
Less Direct Fixed Expenses:
225,000
120,000
250,000
595,000
175,000
80,000
50,000 $
305,000
(5,000)
(15,000)
Machine Rent
(20,000)
(50,000)
(75,000)
Supervision
(10,000)
(20,000)
(45,000)
(25,000)
(45,000) $
Depreciation
(35,000)
(10,000)
(70,000)
Segment Margin
120,000
40,000
115,000
Refer to the information for ckory Company above. ckory’s management is deciding whether to keep
or drop the Roaster product line. ckory’s parquet flooring product line has a contribution margin of
$50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant
fixed costs associated with this line include 80% of Roaster’s machine rent and all of Roaster’s
supervision salaries.
Required:
1. Would you recommend the company to drop the Roaster Product line? Support your answer with
appropriate computations.
2. There is additional information that the elimination of the Roaster line would result in a 20%
decrease in the sales of the Spatula line. Do you think the company should drop the Roaster line?
3. List other factors that ckory should consider in deciding whether to drop the Roaster line (at
least 2 factors).