Company sells 3 products A, B, and C. The following the sales and the cost data for the three products:

A B C

Units 5,000 6,000 3,000

Selling Price 15 12 20

Costs:

Variable 12 5 10

Fixed 5 5 5

Total Unit Cost 17 10 15

Profit (loss) per unit (2) (2) (5)

Total fixed cost is allocated among the products based on the units produced and sold. The company does not keep inventories. Production is done based on sales orders received from the customers.

Assuming that if production of product A is discontinued some customers originally buying product A will shift to product B. It is estimated that Bs sales will go up by 1,000. Fixed cost per unit of the remaining products will increase to 7. Should production and sale of product A be discontinued? Why. Show solution.