Suppose that if hospital supplies were dropped retail store

Reference no: EM13477997

Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina's business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.

	Hospital Supplies	Retail Stores	Mail Order
Sales	$120,000	$440,000	$360,000
Variable costs	64,000	200,000	140,000
Contribution Margin	56,000	240,000	220,000
Direct Fixed Costs	50,000	80,000	90,000
Allocated common fixed costs	20,000	70,000	60,000
Net Income	($ 14,000)	$ 90,000	$ 70,000

Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact of the increase in retail store sales have on overall profitability?

Reference no: EM13477997

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