Toxemia Salsa Company manufactures five flavors of salsa. Last year, Toxemia generated net operating income of $40,000. The following information was taken from last year's income statement segmented by flavor (brackets indicate a negative amount):

Wimpy Mild Medium Hot Atomic

Contribution margin $ (2000) $45,000 $35,000 $50,000 $162,000

Segment margin $ (16,000) $ (5000) $7000 $10,000 $94,000

Segment margin less

allocated common fixed

expenses $ (26,000) $ (15,000) $ (3000) $0 $84,000

Toxemia expects similar operating results for the upcoming year. If Toxemia wants to maximize its profitability in the upcoming year, which flavor or flavors should Toxemia discontinue? A no flavors should be discontinued B wimpy C wimpy and mild D wimpy, mild, and medium

Question

Jimmy Allen

Business

8 February, 09:50

Toxemia Salsa Company manufactures five flavors of salsa. Last year, Toxemia generated net operating income of $40,000. The following information was taken from last year's income statement segmented by flavor (brackets indicate a negative amount):

Wimpy Mild Medium Hot Atomic

Contribution margin $ (2000) $45,000 $35,000 $50,000 $162,000

Segment margin $ (16,000) $ (5000) $7000 $10,000 $94,000

Segment margin less

allocated common fixed

expenses $ (26,000) $ (15,000) $ (3000) $0 $84,000

Toxemia expects similar operating results for the upcoming year. If Toxemia wants to maximize its profitability in the upcoming year, which flavor or flavors should Toxemia discontinue? A no flavors should be discontinued B wimpy C wimpy and mild D wimpy, mild, and medium

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Answers (1)

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Flint · Answer 1

C wimpy and mild

Explanation:

The Allocated fixed Common overhead is irrelevant for this Decision because the expense is a head office expense which is managed by a Head office department.

Of our interest is the Incremental Revenues and Expenses that result from existence of a Segment (Segment Margin).

The segment margin consists of controllable Fixed and Variable costs attributable to a particular segment.

Discontinue flavor giving a negative Segment Margin that is : Wimpy and Mild