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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