Problem - CVP application - eliminate product from operations? Body Sculpture, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here.
MegaMuscle PowerGym ProForce
Selling price per unit $280 $400 $580
Contribution margin per unit $84 $154 $116
Monthly sales volume-units $6,000 $4,000 $2,000
Fixed expenses per month Total of $1,280,000
Required:
a. Calculate the contribution margin ratio of each product.
b. Calculate the firm's overall contribution margin ratio.
c. Calculate the firm's monthly break even point in sales dollars.
d. Calculate the firm's monthly operating income.
e. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $1,080,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the ProForce model? Explain your answer.
f. Assume the same facts as in part e. Assume also that the sales volume for the PowerGym model will increase by $1,000 units per month if the ProForce model is eliminated. Would you recommend eliminating the ProForce model? Explain your answer.