Product X Product Y
Sales revenue $128,000 $192,000
Variable manufacturing cost 48,000 80,000
Fixed manufacturing cost 40,000 60,000
Gross margin 40,000 52,000
Fixed selling and administration 11,200 16,800
Variable selling and administration 14,400 40,000
Net income $14,400 $(4,800)
Upon review of the financial results, the owner of the company wanted to drop product Y. If product Y is dropped, the company expects to increase the sales of product X by next year and there will be no change to the company's cost structure.
a) Compute the contribution margin ratio for Product X and Product Y. b) Compute the change in annual income if product Y is dropped and only product X is sold.
Answer a) Contribution margin ratio for Product X = 51.25%... View the full answer