Shocking Company produces and sells two products with the following income statement data in 2015:

 

(in pesos) Product 1 Product 2 Total

Sales 300 600 900

- Variable costs 120 200 320

Contribution margin 180 400 580

- Avoidable fixed costs 100 100 200

Segment margin 80 300 380

- Allocated fixed costs 200 200 400

Profit (loss) (120) 100 (20)

Required: Determine the effect of the following independent cases to the overall profit of the enterprise.

a. Product 1 is dropped.

b. Product 1 is dropped and 15% of the allocated fixed cost is eliminated.

c. Product 1 is dropped and the released facility is used to produce and sell 40% more of Product 2

d. Product 1 is discontinued and 40% of the product's avoidable fixed costs would remain with a corresponding 20% decrease in the sales of product 2.

Answer rating: 100% (QA)

To determine the effect of the independent cases on the overall profit of the enterprise we need to analyze the changes in sales variable costs contri... View the full answer