Reference no: EM132633523

Shocking Company produces and sells two products with the following income statement data in 2015:

(in pesos)

                                        Product 1                Product 2                     Total

Sales                              300                      600                       900

Variable costs                 120                         200                   320

Contribution margin               180                     400                  580

Avoidable fixed costs           100                        100                   200

Segment margin                  80                          300            380

Allocated fixed costs          200                            200                  400

Profit (loss)                     (120)                            100                   (20)

Required:

Problem 1: Determine the effect of the following independent cases to the overall profit of the enterprise.

a. Product 1 is dropped.

b. Product 1 is dropped and 15% of the allocated fixed cost is eliminated.

c. Product 1 is dropped and the released facility is used to produce and sell 40% more of Product 2

d. Product 1 is discontinued and 40% of the product's avoidable fixed costs would remain with a corresponding 20% decrease in the sales of product 2.