What impact on profit would result from dropping product c

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Reference no: EM13948699

Yavapei Company produces three products: A, B, and C. A segmented income statement, with amounts given in thousands, follows:

	A	B	C	Total
Sales revenue	$1,800	$1,600	$210	$ 3,610
Less: Variable expenses	1,350	1,000	140	2,490
Contribution margin	$ 450	$ 600	$ 70	$1,120
Less: Direct fixed expenses	150	300	80	530
Segment margin	$ 300	$ 600	$(10)	$ 590
Less: Common fixed expenses				340
Operating income				$ 250

Direct fixed expenses include depreciation on equipment dedicated to the prod- uct lines of $20,000 for A, $120,000 for B, and $25,000 for C. None of the product line equipment can be sold, and would have to be disposed of if the product line were dropped.

Required

1. What impact on profit would result from dropping Product C?

2. Suppose that 10 percent of the customers for Product B choose to buy from Yavapei because it offers a full range of products, including Product C. If C were no longer available from Yavapei, these customers would go elsewhere to purchase B. Now what is the impact on profit if Product C is dropped?

Reference no: EM13948699

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