Question: The business makes sofas and computer desks. The table below shows the financial information for each item: Sofa Computer Desk Total Annual Unit Volume 250,000
The business makes sofas and computer desks. The table below shows the financial information for each item:
| Sofa | Computer Desk | Total | |
| Annual Unit Volume | 250,000 | 300,000 | |
| Unit Price | $ 75 | $ 225 | |
| Sales Revenue | $ 18,750,000 | $ 67,500,000 | $ 86,250,000 |
| Unit Variable Cost | $ 25 | $ 125 | |
| Total Variable Cost | $ 6,250,000 | $ 37,500,000 | $ 43,750,000 |
| Unit Contribution | $ 50 | $ 100 | |
| Total Contribution | $ 12,500,000 | $ 30,000,000 | $ 42,500,000 |
| Fixed Costs | $ 10,000,000 | $ 15,000,000 | $ 25,000,000 |
| Net Profit | $ 2,500,000 | $ 15,000,000 | $ 17,500,000 |
The business is considering discontinuing the sofa since the computer desk's net profit is significantly more than the sofa's. If the Sofa is discontinued, the sofa production line will be stopped and the production employees will be transferred to other duties. Perform a contribution analysis to calculate the impact that discontinuing the sofa would have on the company's total net profit. Calculate the change in net profit if the Sofa is discontinued.
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