Question
Healthy Ltd has two product lines: Basic and Premium. Business costs have been divided roughly into their variable and fixed elements. The business is considering
Healthy Ltd has two product lines: Basic and Premium. Business costs have been divided roughly into their variable and fixed elements. The business is considering whether to drop one of the product lines. The following financial information about each of the product line has been provided:
| Basic line | Premium line | Total |
Sales revenue | $100,000 | $80,000 | $180,000 |
Less Cost of goods sold | ($20,000) | ($32,000) | ($52,000) |
Less Other variable costs | ($10,000) | ($12,000) | ($22,000) |
Contribution Margin | $70,000 | $36,000 | $106,000 |
Less Avoidable fixed costs | ($25,000) | ($6,000) | ($31,000) |
Less Unavoidable fixed costs | ($5,000) | ($20,000) | ($25,000) |
Profit | $40,000 | $10,000 | $50,000 |
Question: If the business drops Premium product line, what will happen to total profit?
-Total profit will reduce by $45,000.
-Total profit will reduce by $30,000.
-Total profit will reduce by $62,000.
-Total profit will reduce by $10,000.
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