Miami Ice Treats (MIT) is a vertically-integrated, multi-divisional company in the shaved ice business. Shaved ice...

 

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Miami Ice Treats (MIT) is a vertically-integrated, multi-divisional company in the shaved ice business. Shaved ice is a treat made by scraping a block of ice into a cup to make a fluffy, snow-like mound and then adding a flavored syrup; the shaved ice absorbs the syrup so each spoonful is both refreshing and flavorful, MIT's shaved ice treats are sold in three sizes - small (8 ounces), medium (14 ounces), and łarge (20 ounces). MIT sells its branded shaved ice treats directly to consumers from specialized buses or carts at limited-run events such as street fairs, carnivals, and concerts and from small stand-alone buildings or kiosks in high-traffic areas such as beachfront boardwalks or town centers. MIT's divisions are involved in all aspects of manufacturing, distributing, and selling shaved ice to consumers. Its divisions include the following. • Vehicle Division - Manufactures and warehouses buses and carts for selling shaved ice Building Division - Identifies locations for and builds stand-alone buildings and kiosks for selling shaved ice Supplies Division - Manufactures and distributes equipment and supplies needed to make and serve shaved ice, except for the ice (e.g., ice shavers, syrups, syrup dispensers, cups, spoons, napkins, etc.) • Ice Division - Produces ice blocks and distributes them to retail locations • Retail Division - Sells MIT-branded shaved ice from MIT-branded vehicles and buildings to consumers The Vehicle, Building, Supplies and Ice Divisions all sell to the Retail Division as well as to outside customers who want to operate or need supplies for non-MIT-branded shaved ice businesses. The Retail Division purchases everything to run MIT's retail locations from the other MIT divisions; it does not purchase anything from outside suppliers. For MIT's retail location in Cincinnati, annual financial information for the three sizes of shaved ice treats is as follows. Small Medium Large Total Sales volume, in units 6.000 4,000 5.000 15.000 Sales revenue $12,000 $16,000 $30,000 $58,000 Less variable expenses: Variable cost of sales $1,080 $1,280 $2.400 $4,760. Variable selling and administrative $120 $160 $300 $580 Contribution margin $10,800 $14,560 $27,300 $52,660 Less: Product-related fixed expenses $1.000 $1.500 $2.000 $4.500 Contribution to allocated fixed costs $9,800 $13,060 $25,300 $48,160 Less: Allocated fixed costs $10.000 $10,000 $10.000 $30.000 Net income before taxes ($200) $3.060 $15.300 $18.160 Based on economic considerations, should the small size shaved ice treat be eliminated from the Cincinnati location's product offerings? Why or why not? Based on economic considerations, should the small size shaved ice treat be eliminated from the Cincinnati location's product offerings? Why or why not? O Yes, because the contribution margin per unit of the small size treat is the lowest of all the sizes. O No, because sales volume for the small size treat is the highest of all the sizes. O Yes, because net income before taxes for the small size treat is negative. O No, because the small size treat generates enough contribution to cover its fixed costs. Miami Ice Treats (MIT) is a vertically-integrated, multi-divisional company in the shaved ice business. Shaved ice is a treat made by scraping a block of ice into a cup to make a fluffy, snow-like mound and then adding a flavored syrup; the shaved ice absorbs the syrup so each spoonful is both refreshing and flavorful, MIT's shaved ice treats are sold in three sizes - small (8 ounces), medium (14 ounces), and łarge (20 ounces). MIT sells its branded shaved ice treats directly to consumers from specialized buses or carts at limited-run events such as street fairs, carnivals, and concerts and from small stand-alone buildings or kiosks in high-traffic areas such as beachfront boardwalks or town centers. MIT's divisions are involved in all aspects of manufacturing, distributing, and selling shaved ice to consumers. Its divisions include the following. • Vehicle Division - Manufactures and warehouses buses and carts for selling shaved ice Building Division - Identifies locations for and builds stand-alone buildings and kiosks for selling shaved ice Supplies Division - Manufactures and distributes equipment and supplies needed to make and serve shaved ice, except for the ice (e.g., ice shavers, syrups, syrup dispensers, cups, spoons, napkins, etc.) • Ice Division - Produces ice blocks and distributes them to retail locations • Retail Division - Sells MIT-branded shaved ice from MIT-branded vehicles and buildings to consumers The Vehicle, Building, Supplies and Ice Divisions all sell to the Retail Division as well as to outside customers who want to operate or need supplies for non-MIT-branded shaved ice businesses. The Retail Division purchases everything to run MIT's retail locations from the other MIT divisions; it does not purchase anything from outside suppliers. For MIT's retail location in Cincinnati, annual financial information for the three sizes of shaved ice treats is as follows. Small Medium Large Total Sales volume, in units 6.000 4,000 5.000 15.000 Sales revenue $12,000 $16,000 $30,000 $58,000 Less variable expenses: Variable cost of sales $1,080 $1,280 $2.400 $4,760. Variable selling and administrative $120 $160 $300 $580 Contribution margin $10,800 $14,560 $27,300 $52,660 Less: Product-related fixed expenses $1.000 $1.500 $2.000 $4.500 Contribution to allocated fixed costs $9,800 $13,060 $25,300 $48,160 Less: Allocated fixed costs $10.000 $10,000 $10.000 $30.000 Net income before taxes ($200) $3.060 $15.300 $18.160 Based on economic considerations, should the small size shaved ice treat be eliminated from the Cincinnati location's product offerings? Why or why not? Based on economic considerations, should the small size shaved ice treat be eliminated from the Cincinnati location's product offerings? Why or why not? O Yes, because the contribution margin per unit of the small size treat is the lowest of all the sizes. O No, because sales volume for the small size treat is the highest of all the sizes. O Yes, because net income before taxes for the small size treat is negative. O No, because the small size treat generates enough contribution to cover its fixed costs.