Multiple Changes in Profit Plans: Multiple Products (L014, 2, 3)

Information on Guadalupe Ltd.’s three products follows:

A B Cc Unit sales per month ......... 900 1,400 900 Selling price per unit.......... $ 5.00 $7.50 $4.00 Variable costs per unit........ (5.20) (6.00) (2.00)

Unit contribution margin. ...... $(0.20) $1.50 $2.00 Required Determine the effect each of the following situations would have on monthly profits. Each situation should be evaluated independently of all others.

a. Product A is discontinued.

b. Product A is discontinued, and the subsequent loss of customers causes sales of Product B to decline by 100 units.

c. The selling price of A is increased to $5.50 with a sales decrease of 150 units.

d. The price of Product B is increased to $8.00 with a resulting sales decrease of 200 units.
However, some of these customers shift to Product A; sales of Product A increase by 140 units.

e. Product A is discontinued, and the plant in which A was produced is used to produce D, a new product. Product D has a unit contribution margin of $0.30. Monthly sales of Product D are predicted to be 600 units.

f. The selling price of Product C is increased to $4.50, and the selling price of Product B is decreased to $7.00. Sales of C decline by 200 units, while sales of B increase by 300 units.