Question

A bakery has the following three lines of products. The owner is considering dropping bagel, which would reduce the bakery's total fixed costs by $400. All revenue and variable costs would also be eliminated. Sales Variable costs Contribution margin Fixed costs Operating profit (loss) Muffins $ 2,000 $ 500 $ 1,500 $ 1,200 $ 300 Cookies $ 2,600 $ 700 $ 1,900 $ 1,300 $ 600 Bagels Total $ 2,800 $ 7,400 $ 1,500 $ 2,700 $ 1,300 $ 4,700 $ 1,400 $ 3,900 $ (100) $ 800 What would be the total profit if the company dropped the bagel production?

Answer 1

	Muffins	Cookies	Bagels	Total
Sales	$2,000	$2,600		$4,600
Less: Variable Costs	$500	$700		$1,200
Contribution Margin	$1,500	$1,900	$0	$3,400
Less: Fixed Costs	$1,200	$1,300	$1,000	$3,500
Operating Profit / (loss)	$300	$600	-$1,000	-$100

If the company dropped the bagel production the company will start to make losses.