Change in annual short term profit from dropping a product.

A firm conducted a relevant cost analysis of one of its product lines that has only two products, Galaxy and Starz Sales for Starzare decreasing and the purchase costs increasing the firm is considering dropping Starz products and only selling Galaxy. The Company allocates fixed costs (both corporate and selling/administration to products on basis of sales revenue When the CEO of the company saw the income statement, he agreed that Starz should be dropped. If this is done, sales of Galaxy are expected to increase by 15% next year the host structure will remain the same. Sales Variable cost of goods sold Galaxy 300,000 70.000 230 000 Starz 350,000 105.000 Grass margin 245.000 80.000 30.000 Operating Expenses Fixed corporate costs Variable selling and administration Fixed selling and administration Total Operating Expenses Operating income foss) 120,000 95,000 33 000 9000 119 000 111,000 248.000 13 000 Find the expected change in annual short-term operating income by dropping Starz and selling only Galaxy 300,000 70,000 30 000 200,000 300,000 0.15 = 45,000 350,000 105,000 95000 150,000 45,000 - 150,000 = 150,000 Loss from dropping Starz B What strategic factors should be considered? O