d. Calcuiate the hrm\'s monthly operating income ating income 0-1. Management is

Question

d. Calcuiate the hrm's monthly operating income ating income 0-1. Management is consdering the ctimination of the Prof orce model due to its low sates volume and low contitution margin rato As a resut, total tued expenses can be reduced to s27 month. Assuming that this change woukd not affect the other models, what would be the eftlect on net operating income roo per ecrease by e-2. Would you recommend the elimination of the ProForce moder? O Yes No t-1. Assume the same facts as in requrement e-1 Assume atso that the sales volume for the PowerGym model wal ncrease by 509 units per month if the ProForce model is eiminated What would be the effect on operating income Type here to search 18 PM 11/12/2017

Explanation / Answer

e-1:

by discontinuing proforce a total contribution of = 1010*58= 58580 is lost and resulted in a gain due to savings in fixed cost of 328000-277700=50300. Since contribution lost is more by 58580-50300= 8280, net operating income will reduce by 8280.

f-1:

new contribution from powergym= 509*78= 39702

Benefits of discontinuing proforce:

Hence net operating income will increase by 31422

New contribution from powergym 39702 Savings in fixed cost 50300 Total benefits 90002 Less: Contribution lost from profoce -58580 Net benefit 31422

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