Dalton corporation is analyzing product line feasibility. They allocate corporate overhead of $1,800 based on Labor dollars. The president believes he can increase corporate performance by eliminating unprofitable products.
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Product A
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Product B
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Product C
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Product D
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Net Sales
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1,100
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800
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1,250
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1,500
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Direct Labor
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(500)
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(600)
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(400)
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(600)
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Direct Materials
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(150)
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(300)
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(125)
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(150)
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a. Prepare a Contribution Margin Income statement based on all four products and determine if any product lines should be dropped.
b. Prepare a Contribution Margin Income statement to show that what would happen if Dalton does drop a product line.
c. Does Dalton's operational performance increase if they drop a product line?
d. Should Dalton drop their unprofitable product lines?
e. What is this an example of?