Decision making - keep or drop questions - management accounting

Question 1

A company has three products: Alpha, beta and  gamma. The contribution income statements of the product lines are as follow:

Product Line	Alpha	Beta	Gamma
Sales	$467,000	$314,000	$598,000
Variable Costs	241,000	169,000	321,000
Contribution Margin	$226,000	$145,000	$277,000
Direct Fixed Costs	91,000	86,000	112,000
Allocated Fixed Costs	93,000	62,000	120,000
Net Income	$42,000	− $3,000	$45,000

The product manager told the director that product beta has to be dropped as it is making a loss. DO you agree with the product manager? Illustrate your answers. 


Question 2

BMM manufactures different car series including 3, 5 and 7 series. The 3 series has shown net operating loss for the past 6 quarters. The income statement for 3 series are shown below:

	Extract of Income Statement
	For 3 Series
	Sales			$500,000
	Less: variable expenses
	Variable manufacturing costs	$120,000
	Variable shipping costs	5,000
	Commissions	75,000		200,000
	Contribution margin			$300,000
	Less: fixed expenses
	General factory overhead	$60,000
	Salary of line manager	90,000
	Depreciation of equipment	50,000
	Advertising - direct	100,000
	Rent - factory space	70,000
	General admin. expenses	30,000		400,000
	Net operating loss			$(100,000)

Investigation has revealed that total fixed general factory overhead and general

administrative expenses would not be affected if the 3 series is dropped. The fixed general factory overhead and general administrative expenses assigned to this product would be reallocated to other product lines.

The equipment used to manufacture 3 series has no resale value or alternative use.

Should 3 series be dropped?