Reference no: EM132990519
Question - Wrong Way Roger Co. makes three types of GPS devices. The Basic GPS model is an entry-level automotive GPS device; it is sold through discounters and Amazon.com. The Runner's GPS is a miniaturized model that allows the runner to track mileage, steps, and heart rate while running; it is sold through athletic stores and on sports gear websites. The Chart Plotter is a specialized GPS device for sailors; it can be customized with maps of the sea floor and specific geographic areas of coastline and deep water. It is sold via the Web on dedicated GPS sites. RWR is considering dropping the Basic GPS line and keeping the Runner's GPS and Chart Plotter. The segmented income statement is presented below.
Basic GPS Runner's GPS Chart Plotter Total
Sales $450,000 $980,000 $1,670,000 $3,100,000
Less variable costs 324,000 372,000 601,600 1,297,600
Contribution margin $126,000 $608,000 $1,068,400 $1,802,400
Less direct fixed costs: Advertisings 85,000 124,000 130,000 339,000
Supervision 60,000 115,000 135,000 310,000
Segment margin $(19,000) $369,000 $803,400 $1,153,400
Less common fixed expenses 915,000
Operating income $238,400
Which alternative is more cost effective and by how much? WHAT IF? Dropping the Basic GPS line would mean a 10 percent loss of volume for the Runner's GPS device and a 2 percent loss in volume for the Chart Plotter? Which alternative would be more cost effective and by how much?