Foto Company manufactures and sells a product called JYMP. Results from last yea
ID: 2473718 • Letter: F
Question
Foto Company manufactures and sells a product called JYMP. Results from last year from the sale of JYMP appear below:
Sales revenue (8,000 JYMPs @ $120 each) .............. $960,000 Variable costs ....................................... 640,000 Contribution margin .................................. 320,000 Fixed costs: Salaries of line supervisors ......................... 100,000 Advertising expense .................................. 132,000 Allocated general overhead ........................... 160,000 Net loss ............................................. <72,000>
Foto Company is considering eliminating the JYMP product line. The company has determined that if the JYMP product line is discontinued, the contribution margin of its other products will increase by $120,000.
Calculate the increase in company profits if the JYMP product line is discontinued. Do not use decimals or type the word increase after your answer.
Explanation / Answer
Sales Revenue from JYMP = $ 960,000
Varaible Cost = $ 640,000
Contribution Margin = $ 320,000
If JYMP is discontinued, the contribution from other products will increase by $ 120,000.
The, Contribution foregone is $ 320,000 and Contribution increase by $ 120,000,
therefore, Net Profit decrease by $ 200,000 ( $ 320,000 - $ 120,000) if product JYMP is discontinued.