Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe segment and is considering dropping that product line. The following information is available regarding its canoe segment. Should management discontinue the manufacture of canoes? Support your decision.
Marinette Company
Income Statement - Canoe Segment
Sales...................................................... $2,000,000
Variable costs
Direct materials............................... $450,000
Direct labor.................................... 500,000
Variable overhead............................ 300,000
Variable selling and administrative........ 200,000
Total variable costs.................................... 1,450,000
Contribution margin................................... 550,000
Fixed costs
Direct.......................................... 375,000
Indirect........................................ 300,000
Total fixed costs....................................... 675,000
Net income............................................. $(125,000)