Eliminating operations - Capital Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, in $000s, is as follows:

Required

Management is considering making a new product using product Ns equipment. If the new

product's selling price per unit were $12, its variable costs were $8, and its advertising costs

were the same as for product A, how many units of the new product would the company

have to sell to make the switch from product A to the new product worthwhile?

A B C Total Sales revenue $2,200 $1,400 $1,800 $5,400 Variable expenses 1,650 600 1,080 3,330 Contribution margin $ 550 $ 800 $ 720 $2,070 Advertisinga expense $ 500 $ 475 $ 520 $1,495 Depreciation expense 15 10 20 45 Corporate expenses 90 80 105 275 Total fixed expenses $ 605 $ 565 $ 645 $1,815 Operating income $ (55) $ 235 $ 75 $ 255 aSpecific to each product. Specific to each product; no other use available, no resale value. Allocated based on number of employees