What combination of segments will maximize profits

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Problem

After reviewing the company's performance, the general manager of Compass Distributing, Inc. must address the firm's profitability. Presently the company has 20% excess capacity. (All fixed costs are allocated costs.)

Segment

North

South

East

West

Sales

10

45

50

20

Less: variable costs

12

32

33

19

Contribution margin

(2)

13

17

1

Less: fixed costs

1

11

13

5

Operating profit (loss)

(3)

2

4

(4)

REQUIRED:

a. For the company as a whole,what is the current operating profit (loss) ?
b. If the manager eliminated the unprofitable segments, what would be the new operating profit (loss) for the company as a whole?
c. What combination of segments will maximize profits? What would be that new operating profit (loss) for the company as a whole?

Reference no: EM131970802

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