Mr. Earl Pearl

Mr. Earl Pearl, Accountant for Margie Knall, Inc. has prepared the following product-line income data: 
PRODUCT Total A B C Sales…………………………………………$ 100,000……..$50,000………$20,000………..$30,000 Variable Expenses………………………… 60,000……….30,000…………10,000………….20,000 Contribution Margin……………………….. .40,000……….20,000…………10,000………….10,000 Fixed Expenses: Rent…………………………………………. .5,000………..2,500…………..1,000……………1,500 Depreciation………………………………. 6,000………..3,000…………..1,200…………….1,800 Utilities………………………………………4,000………..2,000……………..500…………….1,500 Supervisors’ salaries………………….. 5,000………. 1,500……………..500…………….3,000 Maintenance………………………………3,000………..1,500………………600………………900 Administrative Expenses……………. 10,000………..3,000……………..2,000…………..5,000 Total Fixed Expenses…………………… 33,000……….13,500……………5,800………….13,700  Net Operating Income…………………… $7,000……….$6,500………….$4,200…………($3,700) The following additional information is available: • The factory rent of $1,500 assigned to product C is avoidable if the product were dropped. • The company’s total depreciation would not be affected by dropping C. • Eliminating product C will reduce the monthly utility bill from $1,500 to $800. • All supervisors’ salaries are avoidable. • If product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. • Elimination of product C will make it possible to cut two persons from the administrative staff, currently, their combined salaries total $2,000. Required: Prepare an analysis showing whether product C should be eliminated. Articulate your findings.