Question -
ABC Company makes and sells two products, X and Y. The income statement for last year was as follows:
|
Product X
|
Product Y
|
|
Sales revenue
|
$ 102,400
|
$ 153,600
|
|
Variable manufacturing cost
|
38,400
|
64,000
|
|
Fixed manufacturing cost
|
32,000
|
48,000
|
|
Gross margin
|
32,000
|
41,600
|
|
Fixed selling and administration
|
8,960
|
13,440
|
|
Variable selling and administration
|
11,520
|
32,000
|
|
Net income
|
$ 11,520
|
$ (3,840)
|
Upon review of the financial results, the owner of the company wanted to drop product Y.
If product Y is dropped, the company expects to increase the sales of product X by: next year and there will be no change to the company's cost structure.
Required:
a) Compute the contribution margin ratio for Product X and product Y.
b) Compute the change in annual income if product Y is dropped and only product X is sold.