Wagon Mart is a retailer of mobile devices and sound systems. The store currently carries two mobile phones. Model NT40, of slightly higher quality than
Wagon Mart is a retailer of mobile devices and sound systems. The store currently carries two mobile phones. Model NT40, of slightly higher quality than Model T38, costs $20 more. With only rare exceptions, the store also sells a set of earbuds whenever a phone is sold. The earbuds can be used with either phone. Contribution margin income statements for the three products follow: NT40 m Earbuds Sales $45,000 $32,500 $8,000 Less: Variable costs (20,0001 (25,500! (3,200] Contribution margin $25,000 $7,000 $4,800) Less: Fixed costs * 110.0001 (18,000l 12,700] Operating income $15,000 $(11,000) $2,100 *This includes common xed costs totalingr $18,000, allocated to each product in proportion to its revenues. The owner of Wagon Mart is concerned about the profit performance of Model T38 and is considering dropping it. If the product is dropped, sales of Model NT40 are expected to increase by 30% and sales of earbuds are expected to drop by 25%. Given these projections, what would be the new total operating income if Model T38 were dropped? Should Wagon Mart keep or drop Model T38
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance