Assignment 2: Part 2

Question Part 2 The management accountant for the Pen Company has prepared the following segmented income statement for each of its three product lines. Haco Zinc Fielder Total Sales $500000 $350000 $450000 $1300000 Variable expenses 360000 260000 290000 910000 Contribution margin 140000 90000 160000 390000 Other costs 20000 20000 20000 60000 Segment margin 120000 70000 140000 330000 Allocated avoidable costs 30000 30000 40000 100000 Segment income 90000 40000 100000 230000 Allocated corporate costs 40000 50000 40000 130000 Corporate profit $50000 $(10000) $60000 $100000 Do you recommend dropping the Zinc product line? Why or why not? If the Haco product line had been discontinued the short-term effect on corporate profits would be a decrease of what amount? Assume that the Fielder 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? Assume that an advertising campaign could increase revenues for any of the products by $15000. To maximize corporate profits which product line should receive the advertising dollars? Why?

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