The Fabulous Furniture Company manufactures three types of office furniture: Desks, Book Shelves, and Filing Cabinets. Segment data on sales and expenses for the past six months follow:
Desks Book Shelves Filing Cabinets
Sales $675,000 $1,125,000 $450,000
Variable Costs $202,500 $450,000 $247,500
Contribution Margin $472,500 $675,000 $202,500
Direct Fixed Costs $210,000 $270,000 $180,000
Allocated Fixed Costs. $135,000 $225,000 $90,000
Net Income (Loss) $127,500 $180,000 $(67,500) loss
Management is concerned about the continued losses shown by the Filing Cabinets and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce Filing Cabinets has no resale value.
Required: Prepare a differential cost schedule to indicate whether the company should keep or drop the Filing Cabinets product line