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Exercise 11-15 (Algo) Dropping or Retaining a Segment [LO11-2]

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

Thalassines Kataskeves, S.A. Income StatementBilge Pump For the Quarter Ended March 31
Sales		$ 440,000
Variable expenses:
Variable manufacturing expenses	$ 134,000
Sales commissions	50,000
Shipping	24,000
Total variable expenses		208,000
Contribution margin		232,000
Fixed expenses:
Advertising (for the bilge pump product line)	24,000
Depreciation of equipment (no resale value)	116,000
General factory overhead	43,000*
Salary of product-line manager	117,000
Insurance on inventories	7,000
Purchasing department	51,000
Total fixed expenses		358,000
Net operating loss		$ (126,000)

*Common costs allocated on the basis of machine-hours.

Common costs allocated on the basis of sales dollars.

Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the companys total general factory overhead or total Purchasing Department expenses.

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

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