URL services has two divisions. Basic webpages and custom webpages. Ricky Vega, Custom's manager wants to find out why Custom is not profitable. He has prepared the following reports.

URL Services

Segmented Income Statement

For the year ended December 31

Basic Webpages Custom Webpages Total Company

(1000 units) (200 units)

Basic Revenue $200,000 $150,000 $350,000

Less Variable Costs

Direct professional labor: design $32,000 $80,000 $112,000

Direct professional labor: install 30,000 4,000 34,000

Direct professional labor: maintain 15,000 36,000 51,000

Total Variable Costs $77,000 $120,000 $197,000

Contribution margin $123,000 $30,000 $153,000

Less direct fixed cost

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 costs:

Building rent $24,000

Supplies 1,000

Insurance 3,000

Telephone 1,500

Website rental 500

Total common fixed costs $30,000

Operating income $75,000

URL Services

Custom Webpages Division

Incremental Analysis

Design Install Maintain Total

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

LEss cariable 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)

1. How will URL Services be affected if the Custom Webpages Division is eliminated?

2. How will URL Services be affected if the Design segment of Custom Webpages is eliminated?

3.What should Ricky Vega do? What additional info rmation would be helpful to him in making the decision?