5. Sherpa Company manufactures tents and sleeping bags. The following segment information is available: Total...
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5. Sherpa Company manufactures tents and sleeping bags. The following segment information is available: Total Tents Sleeping Bags $400,000 Sales Variable Costs $600,000 $1,000,000 350,000 625,000 $125,000 $250,000 $ 375,000 Contribution margin Less: Direct fixed overhead Segment margin Less: Common fixed overhead Operating income 120,000 S 5,000 $184,000 S 189,000 200,000 $ 11,000) Sherpa's management is concerned about the operating loss, and is considering dropping the Tents segment since it has a low segment margin. One half (50%) of direct fixed expenses can be avoided if a segment is dropped, but no reduction in common fixed costs will occur. Required: 1. If Sherpa stopped making tents, what would operating income be? 2. Should Sherpa quit making the tents
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