Question

Beta makes product A & product B. Recent performance data is as follows:

	A (based on sales of 100 units)	B (based on sales of 100 units)	Company Total
Sales Revenue	800	500	1300
-VC	(400)	(200)	(600)
=CM	400	300	700
-FC	(600)	(200)	(800)
=Oper. Income	(200)	100	(100)

4) If Beta discontinues the A product line, what will be the effect on total company operating income? Assume all A fixed costs are avoidable if he discontinues it.

5) Assuming only two-thirds of A’s FC are avoidable, what would be the effect on operating income if A is discontinued?

6) What would be the effect on operating income if A is discontinued, assuming only two-thirds of A’s FC are avoidable and that sales of B would decrease by 10% if A is discontinued?

Answer 1

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- ANS & 41 The effect on fotor Company A are avoidable : operating income, if all fixed cost of Amount (100) (i) To fest operating income of company Add: () Saving of operating loss of prod. A 200 Фtay operton /home : T 100 two thind of A's fixed cost 5) The effeut on operating income, if are arcided : (i) Total opereating income of company Less: (ii) fixed cost of A (unavoidabu) - Y3 of 600 Amount (100) (200) Add: (19 saving of Operating loss of prod-A 200 Tom/ Релефон nlome : (100)

61 The effect on operating income, if two-third of A's FC ano. ayudable and sale of P would decrease by 10% ; Amount pood-B (i) Sales Revenue of Lus:() Yariable cost-B (500-101) (200-10) 450 1180) Contribution mangin 270 less : (in Fixed cost-B Cremaon same) (200) to - Operating income-B Less; (j) fixed cost of prod-A (unavoidable) - 1/3 of 600 (200) 200 Add: (V) saving of operating loss of prod-A Totest operating income : 70 Nore? whenever there are any Variation / fruttuation in sales, the - same effect would not make any impaut on cost unless there is a apoidable fixed cost. the fixed

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