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The Karnes Company makes three energy drinks: Beautiful Berry Blue, Fantastic Fruity Freeze and Pumping Passion Pink. Last year, the Fantastic Fruity Freeze drink lost
The Karnes Company makes three energy drinks: Beautiful Berry Blue, Fantastic Fruity Freeze and Pumping Passion Pink. Last year, the Fantastic Fruity Freeze drink lost money so the company is considering discontinuing the product. The fixed costs of the company will not change if the product is discontinued. The following information relates to last years' operations. Beautiful Fantastic Pumping Total Berry Blue Fruity Passion Pink Freeze Sales $300,000 $220,000 $340,000 $860,000 Less Variable Cost ($180,000) ($190,000) ($220,000) ($590,000) Contribution Margin $120,000 $30,000 $120,000 $270,000 Common Fixed Cost ($50,000) ($50,000) ($40,000) ($140,000) (Allocated) Income from Operations $70,000 ($20,000) $80,000 $130,000 Based on the information provided, if the Karnes Company decides to discontinue making Fantastic Fruity Freeze, the overall impact on the company would be: $120,000 ($50,000) $30,000 ($50,000) $120,000 ($40,000) $270,000 ($140,000) Contribution Margin Common Fixed Cost (Allocated) Income from Operations $70,000 ($20,000) $80,000 $130,000 Based on the information provided, if the Karnes Company decides to discontinue making Fantastic Fruity Freeze, the overall impact on the company would be: 1) A $30,000 reduction in profits due to the lost contribution margin from the product line. O2) An increase of $20,000 in profits due to eliminating the product line. 3) A decrease of $240,000 in total relevant costs specific to the discontinued product line. 4) An increase of $190,000 in profits due to eliminating the product line
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