What will happen to the pre-tax profit if bowls are discontinued?

3 McVay Industries (MI) produces ice cream supplies including bowls, scoops and shake makers. MI made $605,000 of pre-tax profit last year. 4 Juan Hernandez, the controller, compiled the following information. S 6 Bowls Scoops Shake Makers TOTAL 7 Units Manufactured and sold 2,000,000 500,000 100,000 8 9 DM per unit $0.50 $1.25 $5.00 10 DL per unit $0.10 $0.50 $4.00 11 VMOH per unit $0.15 $0.25 $5.00 12 FMOH per unit (based on current $0.40 $0.50 $5.00 13 Total Cost per unit $1.15 $2.50 $19.00 14 Selling Price $2.00 $4.00 $25.00 15 Gross Profit per Unit $0.85 $1.50 $6.00 tv 16 17 Total Sales $4,000,000 $2,000,000 $2,500,000 $8,500,000.4 N 18 Total COGS $2,300,000 $1,250,000 $1,900,000 $5,450,000 19 Total Gross Profit $1,700,000 $750,000 $600,000 $3,050,000 Total Variable (selling) costs (300000) (100000) (125000) (525000) SG&A Fixed Costs-Direct (400000) (200000) (100000) (700000) SG&A Fixed Costs-Common (68000) (300000) (240000) (1220000) Pre-Tax Profit $320,000 $150,000 $135,000 $605,000 24 25 Part 1: If bowls are discontinued 26 Question 1: What will happen to the Pre-tax profit if Bowls are discontinued. 27 If the bowls are discontinued or outsourced, fixed manufacturing overhead costs of $366,500 to lease machinery related to bowls production (direct FMOH) could be eliminated. 28 Also, assume that direct fixed SG&A expenses relate directly to the bowls line and could be complest, eliminated if the bowls product line is dropped or outsourced. 29 30 Part 2: If Bowls are outsourced