RYT (aka RotYourTeeth) Candy Company sells lollipops. Last year the company sold
ID: 2456576 • Letter: R
Question
RYT (aka RotYourTeeth) Candy Company sells lollipops.
Last year the company sold 10,000,000 lollipops for $1,000,000.
The Variable Costs were $350,000 and the Net Profits were $100,000
Administration has directed management to double profits in the next year.
DETERMINE whether RYT should discontinue a product line to increase profitability.
RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors: Cherry, Lemon, and Blueberry. Further analysis indicates that 20% of COGS is variable and 30% of Selling and Admin expenses are variable.
Given the following data for the month of September, RYT is considering discontinuing the Blueberry flavor. What would you advise? Support your position.
Cherry
Lemon
Blueberry
Sales
$18,000
$26,000
$9,000
COGS
7,000
12,000
4,000
Gross Profit
11,000
14,000
5,000
Selling and Admin Exp
7,000
8,000
6,000
Net Income
4,000
6,000
(1,000)
Cherry
Lemon
Blueberry
Sales
$18,000
$26,000
$9,000
COGS
7,000
12,000
4,000
Gross Profit
11,000
14,000
5,000
Selling and Admin Exp
7,000
8,000
6,000
Net Income
4,000
6,000
(1,000)
Explanation / Answer
Statement showing computations Particulars Cherry Lemon Blueberry Total Sales 18,000.00 26,000.00 9,000.00 53,000.00 Variable Costs : Variable COGS 1,400.00 2,400.00 800.00 4,600.00 Variable selling and admin 2,100.00 2,400.00 1,800.00 6,300.00 Total Variable Costs 3,500.00 4,800.00 2,600.00 10,900.00 Contribution = Sales - VC 14,500.00 21,200.00 6,400.00 42,100.00 Fixed Costs : Fixed COGS 5,600.00 9,600.00 3,200.00 18,400.00 Fixed selling and admin 4,900.00 5,600.00 4,200.00 14,700.00 Total Fixed Costs 10,500.00 15,200.00 7,400.00 33,100.00 Net Income(Cont - FC) 4,000.00 6,000.00 (1,000.00) 9,000.00 Statement showing computations if blueberry is discontinued Particulars Cherry Lemon Blueberry Total Sales 18,000.00 26,000.00 44,000.00 Variable Costs : Variable COGS 1,400.00 2,400.00 3,800.00 Variable selling and admin 2,100.00 2,400.00 4,500.00 Total Variable Costs 3,500.00 4,800.00 8,300.00 Contribution = Sales - VC 14,500.00 21,200.00 35,700.00 Fixed Costs : Fixed COGS 5,600.00 9,600.00 18,400.00 Fixed selling and admin 4,900.00 5,600.00 14,700.00 Total Fixed Costs 10,500.00 15,200.00 7,400.00 33,100.00 Net Income(Cont - FC) 4,000.00 6,000.00 (1,000.00) 2,600.00 It should not discontinue since net profit will decrease as Blue berry has positive Contribution Income will decrease b 6400 (9000-2600)
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