Question

EXERCISE 12-15 Dropping or Retaining a Segment [L012-2] Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experi- encing losses on its bilge pump product line for several years. The most recent quarterly contribu- tion format income statement for the bilge pump product line follows: Thalassines kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 $850,000 $330,000 42,000 18,000 390,000 460,000 Sales ........ Variable expenses: Variable manufacturing expenses ..... Sales commissions .. Shipping .......... Total variable expenses .... Contribution margin ..... Fixed expenses: Advertising ............... Depreciation of equipment (no resale value) ... General factory overhead .. Salary of product-line manager Insurance on inventories .... Purchasing department . Total fixed expenses Net operating loss ......... 270,000 80,000 105,000* 32,000 8,000 45,000 540,000 $ (80,000) *Common costs allocated on the basis of machine-hours. Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Depart- ment expenses. Required: Would you recommend that the bilge pump product line be discontinued? Support your answer with appropriate computations.