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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.

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. (Leave no cells blank. Enter zeros where appropriate.)

MARINETTE COMPANY Income Statement—Canoe Segment
Sales				$	2,300,000
Variable costs
Direct materials	$	510,000
Direct labor		560,000
Variable overhead		360,000
Variable selling and administrative		230,000
Total variable costs					1,660,000
Contribution margin					640,000
Fixed costs
Direct		435,000
Indirect		360,000
Total fixed costs					795,000
Net income				$	(155,000	)

1. If canoes are discontinued, calculate the net income lost or gained.

2. Should management discontinue the manufacturing of canoes?

• 
  

  No 
• 
  

  Yes

Explanation

1.

Revenue lost					$	2,300,000
Variable costs saved
Direct materials	$	510,000
Direct labor		560,000
Variable overhead		360,000
Variable selling & administrative		230,000
Total variable costs saved						1,660,000
Contribution margin lost						640,000
Direct fixed costs saved						435,000
Income lost					$	205,000

2.
Canoes should not be discontinued.