Considering dropping product

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Reference no: EM133209542

A company currently has two product lines and is considering dropping Product XYZ. Product ABC Product XYZ Total Sales revenue $90,000 $60,000 $150,000 Cost of goods sold (all variable) $35,000 $40,000 $75,000 Contribution margin $55,000 $20,000 $75,000 Fixed costs* $30,000 $25,000 $55,000 Operating Profit (Loss) $25,000 ($5,000) $20,000 *Of the $55,000 total fixed costs, $30,000 is rent, and each product is allocated $15,000. The rent will continue even if the product is dropped. The rest of the fixed costs are related to each product and would be saved if the product was dropped.

Should Product XYZ be dropped? Why or why not?

Yes, because the operating profit would be $5,000 more if Product XYZ was dropped.

Yes, because the operating profit would be $15,000 more if Product XYZ was dropped.

No because the operating profit would be $20,000 less if Product XYZ was dropped.

No, because the operating profit would be $10,000 less if Product XYZ was dropped.

Reference no: EM133209542

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