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Scott, MIT Graduate
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2. The management accountant for the Pen Company has prepared

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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 $500,000 $350,000 $450,000 $1,100,000 Variable expenses 360,000 260,000 290,000 710,000 Contribution margin 140,000 90,000 160,000 390,000 Other costs 20,000 20,000 20,000 60,000 Segment margin 120,000 70,000 140,000 330,000 Allocated avoidable costs 30,000 30,000 40,000 100,000 Segment income 90,000 40,000 100,000 230,000 Allocated corporate costs 40,000 50,000 40,000 140,000 Corporate profit $50,000 $(10,000) $60,000 $90,000 a. Do you recommend dropping the Zinc product line? Why or why not? b. If the Haco product line had been discontinued, the short-term effect on corporate profits would be a decrease of what amount? c. 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? 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?
Submitted: 6 years ago.
Category: Homework