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3. (3 points) Zell Company, which sales, A, B, and C products. The controller has prepared the following income statement for 2019 (in dollars): Sales
3. (3 points) Zell Company, which sales, A, B, and C products. The controller has prepared the following income statement for 2019 (in dollars): Sales revenue 100,000 40,000 80,000 Less Variable costs (30.000) (32,000) (43,000) Contribution margin 70,000 8,000 37,000 Less Fixed costs (20,000) (12,000) (15,000) Net profit before income tax 50,000 (4.000) 22.000 Information: 1. 30% of fixed cost in B product is incurred in producing B product, and remaining is allocated from cost center. 2. A product and B product are complementary goods. Dropping B product effect on 10% decrease of A product sales revenue. 3. C product and B product are substitute goods. Dropping B product effect on 20% increase of c product sales revenue. Required: Should Zell Company be producing or dropping the B product, and what impact on profit would result from dropping B product? (Show the calculation of your decision-making)
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