URL Services has two divisions: Basic Web Pages and Custom Web Pages. Ricky Vega, manager of Custom Web Pages, wants to find out why Custom Web Pages is not profitable and has prepared the following reports:

URL Services

Segmented Income Statement

For the year ended December 31, 20x3

Basic Web Pages Custom Web Pages Total

1,000 units 200 units

$ $ $

Service revenue 200,000 150,000 350,000

Less variable cost

Direct professional

labour design 32,000 80,000 112,000

Direct professional

labour : install 30,000 4,000 34,000

Direct professional

Labour maintain 15,000 36,000 51,000

Total variable cost 77,000 120,000 197,000

Contribution margin 123,000 30,000 153,000

Less direct fixed costs $ $ $

Depreciation on computer

Equipment 6,000 12,000 18,000

Depreciation on servers 10,000 20,000 30,000

Total direct fixed costs 16,000 32,000 48,000

Segment margin 107,000 (2,000) 105,000

Less common fixed cost

Building rent 24,000

Supplies 1,000

Insurance 3,000

Telephone 1,500

Web site rental 500

Total commonfixed costs 30,000

Operating income 75,000

Custom Web Pages Division

URL Services

Segment Profitability Decision

Incremental Analysis

Design Install Maintain Total

$ $ $ $

Service revenue 60,000 25,000 65,000 150,000

Less variable costs 80,000 4,000 36,000 120,000

Contribution margin (20,000) 21,000 29,000 30,000

Less direct fixed costs 6,000 13,000 13,000 32,000

Segment margin (26,000) 8,000 16,000 (2,000)

Required:

1. How will URL Services be affected if the Custom Web Pages Division is eliminated?
2. How will URL Services be affected if the Design segment of Custom Web Pages is eliminated?
3. What should Ricky Vega do? What additional information would be helpful to him in making the decision?