The profit impact of dropping the Beta product line is computed as follows:
Contribution margin lost if the Beta product line is dropped*...... |
$(23,50,000) |
Traceable fixed manufacturing overhead....... |
$27,50,000 |
Decrease in net operating income if Beta is dropped........ |
$(4,00,000) |
* Beta’s contribution margin per unit is $40 [$115 − $ (12+26+12+15)] = $ 115- $ 65 = $50
. Therefore, the decrease in contribution margin if Beta is dropped would be $23,50,000(47,000 units × $50).
Traceable fixed manufacturing overhead = (25*110,000) = |
27,50,000 |
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