Big Top Tent Company is trying to decide whether to keep or drop one of its...

 

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Big Top Tent Company is trying to decide whether to keep or drop one of its outdoor wedding tents. The company's segmented income statement shows that this product is generating a net loss, as follows: Sales revenue Less: Variable costs (canvas, ropes, and direct labor) Contribution margin $ 100,000 70,000 $ 30,000 10,000 Less: Direct fixed costs (supervision) Segment margin Less: Allocated common fixed costs Net operating income (loss) $ 20,000 30,000 $ (10,000) The company estimates that eliminating this product line will increase the contribution margin on a related product line by $25,000. Based on this information, what impact would dropping the line have on the company's overall profitability? Big Top Tent Company is trying to decide whether to keep or drop one of its outdoor wedding tents. The company's segmented income statement shows that this product is generating a net loss, as follows: Sales revenue Less: Variable costs (canvas, ropes, and direct labor) Contribution margin $ 100,000 70,000 $ 30,000 10,000 Less: Direct fixed costs (supervision) Segment margin Less: Allocated common fixed costs Net operating income (loss) $ 20,000 30,000 $ (10,000) The company estimates that eliminating this product line will increase the contribution margin on a related product line by $25,000. Based on this information, what impact would dropping the line have on the company's overall profitability?