Illustration: Martina Company manufactures three models of tennis rackets:
Profitable lines: Pro and Master
Unprofitable line: Champ
|
|
Pro |
Master |
Champ |
Total |
|
Sales |
$800,000 |
$300,000 |
$100,000 |
$1,200,000 |
|
Variable Expenses |
520,000 |
210,000 |
90,000 |
820,000 |
|
Contribution Margin |
280,000 |
90,000 |
10,000 |
320,000 |
|
Fixed Expenses |
80,000 |
50,000 |
30,000 |
160,000 |
|
Net Income |
$200,000 |
$40,000 |
$(20,000) |
$220,000 |
Should Champ be eliminated?
Prepare income data after eliminating Champ product line. Assume fixed costs are allocated 2/3 to Pro and 1/3 to Master.