Final answer:
To determine whether Marin Company's income would increase or decrease by eliminating its canoe segment, we calculate the difference between the contribution margin and the unavoidable fixed costs. The company would see an income increase of $249,200 if they eliminated the canoe segment.
Step-by-step explanation:
The student's question pertains to the decision-making process regarding whether to continue or eliminate a particular segment in a business. In this scenario, Marin Company is analyzing the financial implications of discontinuing its canoe segment, which is currently operating at a loss. To compute the income increase or decrease from eliminating this segment, one must consider both the avoidable fixed costs and the contribution margin lost if the segment ceases operations.
Given the data, the contribution margin is $291,200, which represents the excess of sales over variable costs. This amount contributes to covering fixed costs and profit. However, since the segment's fixed costs are $352,000, the income (loss) is currently at $(60,800). Marin Company can eliminate $310,000 out of the $352,000 of fixed costs if the segment is discontinued, meaning some fixed costs are unavoidable.
By removing the canoe segment, the company would no longer sustain the loss from this segment and would save the avoidable fixed costs. Therefore, the income would increase by the contribution margin less the unavoidable fixed costs, which in this case is $291,200 - $42,000 (the difference between total fixed costs and avoidable fixed costs) = $249,200. So, eliminating the canoe segment would result in an income increase of $249,200 for Marin Company.