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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

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.   

Required: 

 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. 

Top Answer

Answer a) Contribution margin ratio for Product X = 51.25%... View the full answer

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