Question

ABC Company sells three products. Income statements for the three products
for the most recent year appear below:

                                   Product A       Product B       Product C
Sales revenue  ................     $120,000        $180,000       $145,000
Costs:
     Variable costs ...........       78,000          54,000         87,000
     Advertising ..............       12,000           7,000          8,000
     Rent .....................       10,000          10,000         10,000
     Supervisor's salary ......       25,000          35,000         30,000
     Property taxes ...........       10,000           6,000          2,000
Net income/loss ...............      <15,000>         68,000          8,000

The rent is allocated to the three products equally and the property taxes
are allocated based on the square footage each product uses in the factory.

The president of the company is considering eliminating Product A.  If ABC
Company eliminates Product A, sales of Product B are expected to increase
by $10,000.

Calculate the increase in company profits if Product A is dropped.

Answer 1

Question Calculate the increase in company profits if Product A is dropped?

Ans. Amt. In $

After Dropping the Product A, the performance will be as under
			PRODUCT	PRODUCT
			B	C
SALES REVENUE			190000	145000
COST
VARIABLE COST			57000	87000
In B, 30% variable cost on
increase of 10000 sales
advertising			7000	8000
rent			15000	15000
superwisers salary			35000	30000
property tax			16000	2000
Net Income/loss			60000	3000
	Total Net Income is $ 63000
Note: Earlier the Net Income with all 3 products were
68000+8000-15000= $ 61000
Now the company Income is $ 63000 after drop of A
Note: Rent Expenses has been allocated equally.
Assuming the Area is used by Product B only and
accordingly the property tax allocation to B for A.