Question

Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:

	MegaMuscle			PowerGym			ProForce
Selling price per unit	$	131		$	201		$	282
Contribution margin per unit		42			75			59
Monthly sales volume—units		3,060			1,910			1,030
Fixed expenses per month			Total of $321,400

e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $270,240 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.

e-2. Would you recommend the elimination of the ProForce model?

	Yes
	No

  

f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 501 units per month if the ProForce model is eliminated. What would be the effect on operating income.

f-2. Would you recommend eliminating the ProForce model?

	Yes
	No

Answer 1

e-1

	Current Income	Income if Pro force is eliminated
Megamuscle [3060*42]	128520	128520
Power Gym [1910*75]	143250	143250
Proforce [1030*59]	60770	0
Total Contribution Margin	332540	271770
Less Fixed cost	321400	270240
Net Income	11,140	1530

Total Income would reduce by 9610$ [11140-1530]

e-2

No

As it would reduce profit by 9610$.

f-1

	Current Income	Income if Pro force is eliminated
Megamuscle [3060*42]	128520	128520
Power Gym [1910*75]	143250	180825 [1910+501]*75
Proforce [1030*59]	60770	0
Total Contribution Margin	332540	309345
Less Fixed cost	321400	270240
Net Income	11,140	39,105

Income would increase by $27965 if Pro force is eliminated.

f-2

Yes it should be eliminated.