The Clemson Company reported the following results last year for the manufacture and sale of one of
Question:
The Clemson Company reported the following results last year for the manufacture and sale of one of its products, known as a Tam:
Sales (6,500 Tams at $130 each) $845,000
Variable Cost of Sales $390,000
Variable Distribution Costs $65,000
Fixed Advertising Expense $275,000
Salary of Product Line Manager $25,000
Fixed Manufacturing Overhead $145,000
Operating Income (Loss) ($55,000)
Clemson Company is trying to determine whether to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were discontinued, there would be no change in the fixed manufacturing costs of the company.
Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines. How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products?
Expert Answer:
To solve this problem we need to find the number of Tams that would need to be sold next year to mak... View the full answer
