Problem
After reviewing the company's performance, the general manager of Compass Distributing, Inc. must address the firm's profitability. Presently the company has 20% excess capacity. (All fixed costs are allocated costs.)
|
Segment
|
North
|
South
|
East
|
West
|
|
Sales
|
10
|
45
|
50
|
20
|
|
Less: variable costs
|
12
|
32
|
33
|
19
|
|
Contribution margin
|
(2)
|
13
|
17
|
1
|
|
Less: fixed costs
|
1
|
11
|
13
|
5
|
|
Operating profit (loss)
|
(3)
|
2
|
4
|
(4)
|
REQUIRED:
a. For the company as a whole,what is the current operating profit (loss) ?
b. If the manager eliminated the unprofitable segments, what would be the new operating profit (loss) for the company as a whole?
c. What combination of segments will maximize profits? What would be that new operating profit (loss) for the company as a whole?