The Mannix Company manufactures and sells two lines of china. During the most re

Question

The Mannix Company manufactures and sells two lines of china. During the most recent accounting period, the Faux line and Traditional line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should: Eliminate the Traditional line because it is operating at a loss. Keep the Traditional line because it contributes $26,000 to total profitability. Keep the Traditional line because it contributes $55,000 to total profitability. Keep the Traditional line because it contributes $50,000 to total profitability.

Explanation / Answer

Answer: C. Keept the Traditional line as it contributes $55000 to the total profitability of the company.

Note: as depreciations are period costs they have been taken as the fixed costs and charged against the total contributions from the products, like the corporate level fixed costs.

It could be seen , that the traditional is contributing $55000 towards the fixed costs of the company. Therefore the Traditional line should be kept because it contributes $55000 to total profitability of the company.

Faux traditional Total Sales $ 8,00,000 $ 2,00,000 Less: variable costs Unit level production cost $ 5,00,000 $ 1,20,000 Unit level selling and administration costs $     30,000 $     25,000 $ 5,30,000 $ 1,45,000 Contribution $ 2,70,000 $     55,000 $   3,25,000 Less: Fixed costs Depreciation (120000+30000) $ -1,50,000 Corporate level facility expense (26000+26000) $     -52,000 Net profit $   1,23,000

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