Question:
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 indiciate a negative amount):
|
|
Wimpy
|
Mild
|
Medium
|
Hot
|
Atomic
|
|
Contribution margin
|
$(2,000)
|
$45,000
|
$35,000
|
$50,000
|
$162,000
|
|
Segment margin
|
$(16,000)
|
$(5,000)
|
$7,000
|
$10,000
|
$94,000
|
|
Segment margin less allocated common fixed expenses
|
$(26,000)
|
$(15,000)
|
$(3,000)
|
$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?