Answer choices for both are Higher or Lower

Keep-or-Drop Decisions A keep-or-drop decision uses relevant cost analysis to determine whether a segment or line of business should be kept or dropped. In a traditional cost management system, segmented income statements, using unit-based fixed or variable costs, improve the ability to make keep-or-drop decisions. Example: Ginger Company makes three types of microwave ovens. Basic is the small 0.7 cubic foot model sold at discount stores. Countertop is a larger (1.2 cubic foot) model with more advanced features. Built-in is a model designed to fit into cabinetry and is sold through appliance stores. A segmented income statement is shown below. Basic Sales $204,000 Countertop Built-In Total $865,000 $734,600 $1,803,600 302,000 352,000 838,000 43,250 37,000 85,250 Variable COGS 184,000 5,000 Commissions Contribution margin $15,000 $519,750 $345,600 $880,350 Separable fixed expense 30,000 75,000 175,000 280,000 Segment margin $(15,000) $444,750 $170,600 $600,350 Common fixed expenses: Factory overhead 216,000 Selling and administrative expense 290,000 Operating income $94,350 Ginger Company believes the basic model is a concern and is considering a number of options to deal with this situation. One possibility is to drop the Basic line. If that is done, operating income will be $ After further study, Ginger Company has found that if the Basic Model is dropped, sales of the Countertop model will decrease by 5 percent as some stores prefer to order only from a company with both basic and countertop models. Now if the Basic line is dropped, operating income will be $ than if the Basic line is kept