A can manufacturing company produces and sells three different types of cans: Ve

Question

A can manufacturing company produces and sells three different types of cans: Versions X, Y, and Z. A high-level, simplified profit/loss statement for the company is provided here. Corporate overhead (rent, general and administrative expense, etc.) is allocated equally among the three product versions. After reviewing the statement, company managers are concerned about the loss on Version Z and are considering ceasing production of that version. Should they do so? Why or why not? Version X Version Y Version Z Total Net Can Sales $180,000 $240,000 $105,000 $525,000 Variable Costs 105,000 135,000 82,500 322,500 Corporate Overhead 60,000 60,000 60,000 180,000 Contribution to Profit 15,000 45,000 37,500 22,500

Explanation / Answer

manager should not just cease model z . he should analys ,if there is less profit after ceasing model z then he should not stop z model . if the analysis tell that profit is increasing he should surely go for stoping model z . this loss in car z may be occuring becauze comapany is allocating equal cost overhead to all model .they should not do so . they should use not use traditional costing.

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