Question

marin company makes several products, including canoes. the company reports a loss from its canoe segment (see below). all its variable costs are avoidable, and $307,500 of its fixed costs are avoidable. segment income (loss) sales $ 1,009,400 variable costs 721,000 contribution margin 288,400 fixed costs 349,000 income (loss) $ (60,600) (a) compute the income increase or decrease from eliminating this segment. (b) should the segment be continued or eliminated?

Answer 1

To compute the income increase or decrease from eliminating the canoe segment and to determine whether the segment should be continued or eliminated, you need to calculate the segment income and consider its contribution to the overall profitability of the company.

Step-by-step explanation:

To compute the income increase or decrease from eliminating the canoe segment, you need to calculate the segment income for the company. Segment income is calculated by subtracting the avoidable fixed costs from the contribution margin. In this case, the contribution margin is $288,400 and the avoidable fixed costs are $307,500. So, the segment income is -$19,100.

To determine whether the segment should be continued or eliminated, you need to consider its contribution to the overall profitability of the company. If the segment income is negative, as it is in this case, it indicates that the segment is causing a loss for the company. In such situations, it might be prudent to eliminate the segment to improve overall profitability.