Homework Answers
Answer a.
| current total | if dropped other candy | |
| sales | 100000 | 75000 |
| cost of goods sold | 60000 | 45000 |
| contribution margin | 40000 | 30000 |
| Delivery and ordering cost | 7000 | 4000 |
| rent | 8000 | 5000 |
| allocated corporate cost | 15000 | 15000 |
| corporate profit | 10000 | 6000 |
| Loss | 4000 |
No, I would not recommend discontinuing the Other Candy product line because as we can see in above table that this product line contributes $4,000 towards corporate costs and profits and discontinuing it will reduce the corporate profit to 6000.
Answer b.
If the Chocolate product line were discontinued, corporate profits would immediately decrease by $9,000.
Working : - $40,000 - $26,000 - $2,000 - $3,000 = $9,000
Answer c.
closing down the division will affect the workforce and make them idle. And also the unavoidable common fixed cost of other departments will increase.
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