Reference no: EM131870794
Discontinue a Product Problem
Scenario: RYT (aka RotYourTeeth) Candy Company sells lollipops.
Last year the company sold 10,000,000 lollipops for $1,000,000.
The Variable Costs were $350,000 and the Net Profits were $100,000
Administration has directed management to double profits in the next year.
ASSIGNMENT: DETERMINE whether RYT should discontinue a product line to increase profitability.
| |
Cherry
|
Lemon
|
Blueberry
|
|
Sales
|
$18,000
|
$26,000
|
$9,000
|
|
COGS
|
7,000
|
12,000
|
4,000
|
|
Gross Profit
|
11,000
|
14,000
|
5,000
|
|
Selling and Admin Exp
|
7,000
|
8,000
|
6,000
|
|
Net Income
|
4,000
|
6,000
|
(1,000)
|
RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors: Cherry, Lemon, and Blueberry. Further analysis indicates that 20% of COGS is variable and 30% of Selling and Admin expenses are variable.
Given the following data for the month of September, RYT is considering discontinuing the Blueberry flavor. What would you advise? Support your position.