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Merchant Company manufactures and sells three models of electronic printers. The president of the company is considering dropping model JT484 from its product line because the company has experiences losses for this product durind the past three quarters. Following product-level data have been compiled for the most recent quarter:

In addition, the following information is also available: * Factory rent and depreciation will not be affected by the decision to drop model JT484 * Quarterly utility bills will be reduced from $40,000 to $31,000 if JT484 is dropped * Supervision cost for JT484 can be eliminated if dropped. * The Maintenance department will be able to reduce quarterly cost by $7,000. * Elimination of JT484 will make it possible to eliminate two administrative staff positions with a combined salaries of $30,000 per quarter.

(A) Should Merchant Company eliminate JT484? PLEASE EXPLAIN. (B) Merchant's sales manager believes that it is important to continue to produce JT484 to maintaina full product line. He expects the elimination of JT484 will reduce sales of the two remaining products by 5% each. Will this information change your answer to part a? PLEASE EXPLAIN.

CATEGORY $1,000,000 Variable costs Contribution margin Fixed costs: Utilities Total fixed costs Operating income (loss)

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