I need help in how to calculate the amount of sales revenue generated by a Product that would make the Company economically indifferent between dropping Product and increasing the advertising of Product (and thus continuing to sell Product ) Details are below, need the steps to figure this out ABC Company sells three products. Income statements for the three products for the most recent year appear below:
Product A Product B Product C
Sales revenue ...................... $120,000 $180,000 $145,000
Costs:
Variable costs ................. 78,000 54,000 87,000
Advertising .................... 10,000 7,000 8,000
Rent ........................... 10,000 10,000 10,000
Supervisor's salary ............ 25,000 35,000 30,000
Property taxes ................. 12,000 6,000 2,000
Net income/loss ..................... <15,000> 68,000 8,000
The rent is allocated to the three products equally and the property taxes are allocated based on the square footage each product uses in the factory.
The president of the company is considering eliminating Product A. As an alternative to dropping Product A, the president is considering increasing the advertising of Product A.
The cost of the additional advertising will be $26,000 and the additional advertising is expected to increase the sales of Product A.
Assume that if Product A is dropped the sales of Product B will increase by $8,000 and the sales of Product C will increase by $5,000.
Calculate the amount of sales revenue generated by Product A that would make ABC Company economically indifferent between dropping Product A and increasing the advertising of Product A (and thus continuing to sell Product A)