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Desription Product A Product B: Contribution Margin $ 90,000.00 $ 302,000.00

This document contains financial information for Products A and B, including sales, variable costs, contribution margins, fixed costs, and cost ratios. It then provides additional details for Product B and introduces Product C. It calculates the gains and losses if Product C were dropped by considering the variable and direct fixed costs that could be avoided versus the lost sales revenue. Finally, it shows the overall profit and loss statement with and without Product C.

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ikram
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19 views

Desription Product A Product B: Contribution Margin $ 90,000.00 $ 302,000.00

This document contains financial information for Products A and B, including sales, variable costs, contribution margins, fixed costs, and cost ratios. It then provides additional details for Product B and introduces Product C. It calculates the gains and losses if Product C were dropped by considering the variable and direct fixed costs that could be avoided versus the lost sales revenue. Finally, it shows the overall profit and loss statement with and without Product C.

Uploaded by

ikram
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Desription

Sale

Product A
$

Product B

250,000.00

532,000.00

Less: V/C
Variable cost

Contribution Margin
Fixed Cost

Avoidable cost

Unavoildable cost

(160,000.00) $

90,000.00

(90,000.00) $
(33,000.00) $

Total Fixed Cost

(123,000.00) $

Total

(33,000.00) $

Ratio :

(66,000.00) $

302,000.00
(202,000.00)
(66,000.00)

(268,000.00)
34,000.00

66,000.00

0.24

(58,928.57) $

0.28

(58,928.57) $

0.24

(58,928.57) $

0.48

Desription
Sale

0.28

(230,000.00)

Product A

Product B
$

532,000.00

Less: V/C
Variable cost

Contribution Margin
Fixed Cost

Avoidable cost

(202,000.00)

Unavoildable cost

(66,000.00)

Ratio for Unavidalbe cost of C

(33,000.00)

(301,000.00)

(230,000.00)

302,000.00

1,000.00

Use the incremental approach to determine if Product C should be dropped.


Solution
By dropping Product C, the company will loose the sale revenue from the product line. The com
will also obtain gains in the form of avoided costs. But it can avoid only the variable costs and d
C and not the allocated fixed costs. Hence:
If Product C is Dropped
Gains:
$
(160,000.00)
Variable Costs Avoided
Direct Fixed Costs A $
(90,000.00)
Toal avoidable cost $
(250,000.00)
Less: Sales Revenue $
250,000.00
Decrease in Net Inc $
-

Profit & Loss


$

782,000.00

$
$

$
$

(390,000.00)

392,000.00
(292,000.00)

(99,000.00)

(391,000.00)

$ (265,319.69) $ (124,680.31)
$ (67,350.38) $ (198,649.62)
$ (31,649.62) $ (93,350.38)

1,000.00

(33,000.00)

Profit & Loss


$

532,000.00

(230,000.00)

302,000.00

(202,000.00)

(66,000.00)

(33,000.00)

(301,000.00)

1,000.00

2,000.00

d be dropped.

ue from the product line. The compay


void only the variable costs and direct fixed costs of product

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