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Keep-or-Drop Decision

Charlevoix Company produces three products: Torch, Elk, and Walloon. A segmented income statement, with amounts given in thousands, follows:

Line Item Description	Torch	Elk	Walloon	Total
Sales revenue	$1,280	$185	$375	$1,840
Less: Variable expenses	1,115	45	300	1,460
Contribution margin	$165	$140	$75	$380
Less direct fixed expenses:
Depreciation	50	15	10	75
Advertising	95	85	100	280
Segment margin	$20	$40	$(35)	$25

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.

Assume that 30% of the Torch customers choose to buy from Charlevoix because it offers a full range of products, including Walloon. If Walloon were no longer available from Charlevoix, these customers would go elsewhere to purchase Torch.

Required:

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

IncreaseDecrease

fill in the blank 1 of 1$

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

KeepDrop

3. Conceptual Connection: Charlevoix's CFO decided to use the results of studying historical data from several key customers (e.g., Torch, etc.) to forecast the percentage of business the company likely would lose from its other customers if it were to stop making Walloon. Briefly explain the data analytic type represented by the CFO's attempt to better forecast the future behavior of its key customers. [Refer to Exhibit 2-2]

This use of historical customer behavior data represents an example of a

descriptivediagnosticpredictiveprescriptive

data analytic.

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