Your Retail Store?s accountant prepared the following income statement for the ladies? accessories product line:

Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $80,000.

Required:

Should the ladies? accessories product line be dropped? Show the required computations.

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Sales $2,800,000 Less: Variable expenses 1,200,000 Contribution margin 1,600,000 Less: Fixed expenses: Wages $1,100,000 Insurance on inventory 60,000 Advertising 600,000 1,760,000 Net operating income (loss) ($ 160,000)