Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina's business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.
|
|
Hospital Supplies |
retail Stores |
Mail Order |
| Sales |
$120,000 |
$440,000 |
$360,000 |
| Variable Costs |
64,000 |
200,000 |
140,000 |
| Contribution Margin |
56,000 |
240,000 |
220,000 |
| Direct Fixed Costs |
50,000 |
80,000 |
90,000 |
| Allocated Common Fixed Costs |
20,000 |
70,000 |
60,000 |
| Net Income |
$14,000 |
$90,000 |
$70,000 |
Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact of the increase in retail store sales have on overall profitability?