Question
Hot Doggy Dogg has three divisions. Revenues, variable costs, and fixed costs for each division are presented below. Hot Doggy Dogg is thinking of shutting
Hot Doggy Dogg has three divisions. Revenues, variable costs, and fixed costs for each division are presented below. Hot Doggy Dogg is thinking of shutting down the Relish division, since it is unprofitable, and has been so for the past five years.
Hot Dogs | Buns | Relish | |
Revenue | $7,500,000 | 5,200,000 | $1,400,000 |
Variable Costs | 750,000 | 1,000,000 | 820,000 |
Fixed Cost | 4,200,000 | 2,300,000 | 750,000 |
Profit | $2,550,000 | $1,900,000 | $(170,000) |
If the Relish division is shut down, all its fixed costs will be avoidable except $80,000 in allocated corporate costs. Also, hot dog and bun sales will decline by 1% if the Relish division is shut down, since some customers will not eat hot dogs if they cannot buy Hot Doggy Doggs relish.
Find the net benefit of the decision.
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