2 Question 3 A B 10 Marks C 25 Minutes D Belle Inc. prepared monthly operating income for the month of April below. Additional information related to the month was as follows. B 4 Sales $ 5 Variable Costs 6 Contribution Margin 7 Direct Fixed Expenses Line Segment Margin Allocated Fixed Expenses 0 1 2 Line A Line B Line C 84,000 $ 120,000 $ 250,000 56,000 90,000 195,000 24,000 30,000 55,000 23,000 39,000 30,000 2,000 9,000 25,000 5,000 3,000 8,000 -3,000 -12,000 17,000 3 1. 65% of all direct fixed expenses are avoidable if a line is discontinued. 4 E 5 2. Belle allocates common fixed expenses to each line on the basis of sales dollars. Allocated fixed expenses are unavoidable. 6 3. The controller for the company estimated that discontinuing line A would result in a 11% increase in Line C sales, and discontinuing Line B would result in 7 a 14% increase in Line C sales. 8 9 4. April results are representative of what a typical month for the company's operations look like. 20 REQUIRED 21 A) Calculate the net benefit or loss of discontinuing line A. Use incremental analysis (do not use an income statement). 22 23 B) Calculate the net benefit or loss of discontinuing line B. Use incremental analysis (do not use an income statement). 24 25 C) Which line should the company discontinue? Briefly explain.