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Keep$-$or$-$Drop Decision

Charlevoix Company produces three products: Torch, Elk, and Walloon. A segmented income statement follows:

Line Item Description Torch Elk Walloon Total

Sales revenue $$350,000,000$ $$50,000,000$ $$80,000,000$ $$480,000,000$

Less: Variable expenses $300,000,00010,000,00060,000,000370,000,000$

Contribution margin $ $50,000,000$ $ $40,000,000$ $ $20,000,000$ $ $110,000,000$

Less direct fixed expenses:

Depreciation $12,000,0007,000,0005,000,00024,000,000$

Advertising $21,000,00010,000,00030,000,00061,000,000$

Segment margin $ $17,000,000$ $ $23,000,000$ $ $(15,000,000)$ $ $25,000,000$

Direct fixed expenses consist of depreciation and advertising. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold.

Assume that each of the three products has a different marketing campaign whose advertising would be eliminated if the associated product were dropped.

Required:

$1.$ Conceptual Connection: Estimate the impact on profit that would result from dropping Walloon. Enter amount in full, rather than in thousands. For example, $"15000"$ rather than $"15".$

Increase

fill in the blank $1$ of $1$$

$2.$ Conceptual Connection: Should Charlevoix keep or drop Walloon?

Drop

$3.$ Conceptual Connection: Charlevoix's CFO decided to conduct an empirical study of previous years' advertising cost data to better understand the factors that have caused this important expense to vary from year to year. Briefly explain the data analytic type represented by the CFO's study of advertising cost. $[$Refer to Exhibit $2\mathrm{.}2]$

The empirical study of past advertising cost represents an example of a

diagnostic

data analytic.

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