Reference no: EM131560784

Question -

ABC Company makes and sells two products, X and Y. The income statement for last year was as follows:

	Product X	Product Y
Sales revenue	$    102,400	$    153,600
Variable manufacturing cost	38,400	64,000
Fixed manufacturing cost	32,000	48,000
Gross margin	32,000	41,600
Fixed selling and administration	8,960	13,440
Variable selling and administration	11,520	32,000
Net income	$      11,520	$      (3,840)

Upon review of the financial results, the owner of the company wanted to drop product Y.

If product Y is dropped, the company expects to increase the sales of product X by: next year and there will be no change to the company's cost structure.

Required:

a) Compute the contribution margin ratio for Product X and product Y.

b) Compute the change in annual income if product Y is dropped and only product X is sold.