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
Line Item Description (Shown in 000's)
Sales revenue $1,280 $185 $405 $1,870
Less: Variable expenses 1,115 45 304 1,464
Contribution margin $165 $140 $101 $406
Less direct fixed expenses:
Depreciation 50 15 10 75
Advertising 95 85 112 292
Segment margin $20 $40 $(21) $39
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 remain if the associated product were dropped.

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".

Decrease
fill in the blank


2. Should Petoskey keep or drop Walloon?

Keep