The Discount Drug Company has three major product lines: drugs cosmetics and ho

The Discount Drug Company has three major product lines: drugs cosmetics and housewares. The company provides the following sales and cost information
for the month of May for the store in total and for each separate product line (000 omitted):

Drugs

Cosmetics

Housewares

Total

Sales

$240

$300

$360

$900

Less: Variable expenses

160

180

200

540

CM

$80

$120

$160

$360

Less: Fixed costs

Salaries

$34

$40

$46

$120

Advertising

30

50

40

120

Other fixed costs

40

20

40

100

Total

$104

$110

$126

$340

Net income

$(24)

$10

$34

$20

The salaries represent wages paid to employees engaged directly in each product line area.

The advertising represents direct advertising of each product line and is avoidable if the line

is dropped. Other fixed costs which are all committed costs will continue and will split equally

between cosmetics and housewares.

1. Prepare a combined income statement for cosmetics and housewares on the assumption

that drugs are discontinued with no effects on sales of the other product lines.

2. On the basis of the analysis in question 1would you advise dropping the drugs line?