Yavapei Company produces three products: A, B, and C. A segmented income statement, with amounts given in thousands, follows:
| |
A |
B |
C |
Total |
|
Sales revenue
|
$1,800
|
$1,600
|
$210
|
$ 3,610
|
|
Less: Variable expenses
|
1,350
|
1,000
|
140
|
2,490
|
|
Contribution margin
|
$ 450
|
$ 600
|
$ 70
|
$1,120
|
|
Less: Direct fixed expenses
|
150
|
300
|
80
|
530
|
|
Segment margin
|
$ 300
|
$ 600
|
$(10)
|
$ 590
|
|
Less: Common fixed expenses
|
|
|
|
340
|
|
Operating income
|
|
|
|
$ 250
|
Direct fixed expenses include depreciation on equipment dedicated to the prod- uct lines of $20,000 for A, $120,000 for B, and $25,000 for C. None of the product line equipment can be sold, and would have to be disposed of if the product line were dropped.
Required
1. What impact on profit would result from dropping Product C?
2. Suppose that 10 percent of the customers for Product B choose to buy from Yavapei because it offers a full range of products, including Product C. If C were no longer available from Yavapei, these customers would go elsewhere to purchase B. Now what is the impact on profit if Product C is dropped?