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Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement,...

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Accounting

Keep-or-Drop Decision

Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:

Alanson Boyne Conway Total
Sales revenue $1,280 $185 $300 $1,765
Less: Variable expenses 1,115 45 195 1,355
Contribution margin $165 $140 $105 $410
Less direct fixed expenses:
Depreciation 50 15 12 77
Salaries 95 85 108 288
Segment margin $20 $40 $(15) $45

Direct fixed expenses consist of depreciation and plant supervisory salaries. 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 supervisor whose position would be eliminated if the associated product were dropped.

Required:

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

Should Petoskey keep or drop Conway?

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