Delta Aluminums management is considering eliminating product B, which has been showing a loss for several years.

Delta Aluminum’s management is considering eliminating product B, which has been showing a loss for several years. The company’s annual income statement, in $000s, is as follows:

Required
a. Restate the income statement in segment margin format.
b. What would be the effect on income if product B were dropped?
c. Management is considering making a new product using product B’s equipment. If the new product’s selling price per unit were $10, its variable costs were $4, and its advertising costs were the same as for product B, how many units of the new product would the company have to sell to make the switch from product B to the new productworthwhile?

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Total Sales revenue Variable expenses Contribution margin Advertising expense Depreciation expense Corporate expenses Total fixed expenses Operating income $2,200 1,400 800 $ 630 15 90 735 $1,800 1,080 $ 720 $ 520 20 105 $ 645 S 65 $ (15) $ 75 $1,400 800 $ 600 $ 525 10 80 $ 615 $5,400 3,280 $2,120 $1,675 45 275 $1,995 $ 125 Specific to each product. Specific to each product, no other use available, no resale value Allocated based on number of employees.