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Dropping a product line

ShoppingKart, Inc is a supermarket having thee operating departments. An income statement for the most recent month of operations is listed below.
General Meat Produce Total
Sales $50,000 $40,000 $10,000 $100,000
Variable Costs 30,000 16,000 5,000 51,000
Contribution Margin 20,000 24,000 5,000 49,000
Fixed Costs:
Direct, avoidable 5,000 4,000 3,500 12,500
Common, allocated based on sales dollars 10,000 8,000 2,000 20,000
Profit(Loss) $5,000 $12,000 $(500) $16,500

If ShoppingKart, Inc. were to drop the Produce line and make no other changes, income for the month would be?

The space currently being used by Produce could be converted into a Deli Department. If this were done, expected Deli operations are as follows: sales of $20,000; variable costs of $8,000; avoidable fixed costs of $3,000. Assuming no changes for General and Meat departments, income for the month would be?

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Solution Preview

1. The income would change by the segment margin, since the common costs would not change. If Produce is dropped there will be a loss of contribution margin ...

Solution Summary

The solution explains how to determine the impact on net income of dropping a product line