Question

Foto Company manufactures and sells a product called JYMP. Results from last
year from the sale of JYMP appear below:

Sales revenue (8,000 JYMPs @ $120 each) .............. $960,000
Variable costs .......................................  640,000
Contribution margin ..................................  320,000
Fixed costs:
Salaries of line supervisors .........................  100,000
Advertising expense ..................................  160,000
Allocated general overhead ...........................  132,000
Net loss .............................................  <72,000>

Foto Company is considering eliminating the JYMP product line. The company has
determined that if the JYMP product line is discontinued, the contribution
margin of its other products will increase by $120,000.

Calculate the amount of the  increase in company profits if the JYMP product
line is discontinued.

Answer 1

Differential analysis

If product discontinue
Increase in Contribution margin on other products	120000
Allocated general overhead	-132000
Net (loss) if product discontinue	-12000
Net (loss) if product continue	72000
Increase in profit if product discontinue	60000