P12-20 CVP application-eliminate product from operations? [LO 8, 9, 10, 11] Body

Question

P12-20 CVP application-eliminate product from operations? [LO 8, 9, 10, 11]

Body Sculpture, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:

Calculate the contribution margin ratio of each product. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)

Calculate the firm's overall contribution margin ratio. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Calculate the firm's monthly break-even point in sales dollars. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $279,560 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income. (Input the amount as positive value. Omit the "$" sign in your response.)

Assume the same facts as in requirement 5. Assume also that the sales volume for the PowerGym model will increase by 492 units per month if the ProForce model is eliminated. What would be the effect on operating income. (Omit the "$" sign in your response.)

Body Sculpture, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:

Explanation / Answer

Contribution margin ratio = Contribution margin/Selling price x 100
=$44/$135=32.59%

$78/$198 =30.39%

$57/$293=19.45%

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