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Question 24

AcompanyproducesproductsA,BandCandtheprofitandlossstatementforthepasttwelvemonthsshowsthefollowing(inthousands)details.

A

B

C

Sales

R150

R220

R120

CostofSales:

Variable

R80

R120

R80

Allocatedfixed

R40

R40

R30

GrossProfit

R30

R60

R10

Sellingcosts:

Variable

R10

R15

R10

Fixed

R5

R5

R5

Fixedadministrationcosts

R5

R5

R5

NetProfit(loss)

R10

R35

(10)

The company is considering dropping Product C. If it does this, the fixed costs will remain the same except that the company will be able to rent out excess factory space at R30 000 per annum. If other revenue and cost figures remained the same, what would be the effect on annual profit of dropping Product C?

A.Increase of R30 000

B.Increase of R40 000

C.o

D.Decrease of R10 000