Face Care Company makes three products in the same factory. Following are the re
ID: 2378395 • Letter: F
Question
Face Care Company makes three products in the same factory. Following are the revenue and cost data for a typical month, in thousands of dollars.
Razors After Shave Shaving Cream Total
Sales $400 $600 $400 $1,400
Variable Costs 300 240 120 660
Contribution Margin 100 360 280 740
Fixed Costs
Avoidable 120 150 70 340
Unavoidable
(allocated on sales) 80 120 80 280
Total Fixed Costs 200 270 150 620
Income (loss) ($100) $90 $130 $120
1.) Determine total income if razors were dropped from the product line.
2.) Suppose that if razors were dropped, the sales of after-shave would decline by 20% and those of shaving cream by 10%. Determine income for the company if razors were dropped.
Explanation / Answer
1)Avoidable fixed cost will not be there for Razor
Income = Revenue - Variable Cost - Fixed Cost
= 600+400-240-120- 150-70 -280 =$140
2. Contribuion margin for After shave = 360/600 =60%
Sales for After sahve = 80%*600 =$480
Variable cost = 60%*480 =$288
Contribuion margin for Shaving cream = 280/400 =70%
Sales for After sahve = 90%*400 =$360
Variable cost = 70%*360 =$252
Income = 480+360-288-252 -150-70 -280 =-$200
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