Question

Programming

You are the manager of a business unit which produced 5 products with fixed cost of $26000 as well as the following operational data from last period.

1. Please calculate the result

   Table 1-1 PRODUCT SALES UNIT VARIABLE UNIT FULL COST UNIT SELLING PRICE UNIT CONTRIBUTION MARGIN UNIT PROFIT UNIT A 1000 10 13 22 9 B 1500 11 12 16 4 C 1100 16 21 15 -6 D 1200 14 24 22 -2 E 800 13 18 19 1 5,600

   
   based on the above specified program.
2. What would be the result if product C was eliminated, why ?
3. What would be the result if besides product C also product D was eliminated, why?

Answer 1

Answer 1:

Result:

Total net profit = $6,800

Working:

Table 1-1 CONTRIBUTION MARGIN UNIT PROFIT UNIT Profit VARIABLE UNIT SELLING PRICE UNIT FULL COST UNIT PRODUCT SALES UNIT $10 $13 $22 $12 $9 $9,000 1000 A $11 $12 $16 $5 $4 $6,000 B 1500 $16 $21 $15 $6 -$6,600 1100 C $14 $24 $22 $8 -$2 -$2,400 D 1200 $13 $18 $19 $6 $1 $800 800 E Total Net Profit $6,800

Answer 2:

If C is eliminated total net profit will change by = Units sold of C * Contribution per unit of C

= - 1100 * - $1

= $1,100

As such elimination of C will result in increase of total net profit by $1,100

New Profit will be = $6800 + $1100 = $7,900

Hence:

If C is eliminated total net profit will increase by $1,100 to total net profit of $7,900

Answer 3:

If besides product C also product D was eliminated, then total change in profit = Units sold of C * Contribution per unit of C + Units sold of D * Contribution per unit of D

= -1100 * - $1 + (-1200) * $8

= - $8,500

As such elimination of both C and D will result in decrease of total net profit by $8,500

New profit will be = 6800 - 8500 = - $1,700

Hence:

If besides product C, product D is also eliminated then total net profit will decrease by $$8,600 to total net loss of - $1,700