Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:

Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company€™s total general factory overhead or total purchasing department expenses.
Required:
Would you recommend that the company discontinue the manufacture and sale of school knapsacks? Support your answer with appropriate computations.

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WILLIAMS PRODUCTS INC. Income Statement-School Knapsacks For the Quarter Ended June 30 Sales .... Variable expenses: Variable manufacturing expenses.. $225,000 $65,000 24,000 6,000 Sales commissions... Shipping.... Total variable expenses.. Contribution margin.. Fixed expenses: Salary of product-line manager General factory overhead . Depreciation of equipment (no resale value). Advertising-traceable . Insurance on inventories 95,000 130,000 10,500 52,000* 18,000 55,000 4,500 25,000 ...... Purchasing department . Total fixed expenses.. Operating loss ... 165,000 $(35,000) *Allocated on the basis of machine-hours. 'Allocated on the basis of sales dollars.