***Drop Downs: 1. higer or lower 2. higher or lower

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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 Countertop Built-In Total Sales $203,970 $864,875 $734,305 $1,803,150 302,490 351,545 838,270 85,285 $15,660 $518,395 $345,540 $879,595 75,720 175,520 280,535 $(13,635) $442,675 $170,020 599,060 Variable COGS 184,235 Commissions 4,075 43,990 37,220 Contribution margin Separable fixed expense Segment margin Common fixed expenses: 29,295 216,390 290,360 $92,310 Factory overhead Selling and administrative expense Operating income Ginger Company believes the basic model is a concern and is considering a number of options to deal with this situation. One possibility is to drop the Basic line. If that is done, operating income will be$ Select your answer- | . 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 (round to the nearest dollar) |-Select your answer- than if the Basic line is kept