Problem - An insurance company has the following profitability analysis of the services.
Life Insurance Auto Insurance Home Insurance
Revenues $5,000,000 $10,000,000 $3,000,000
Commissions (1,000,000) (2,000,000) (600,000)
Payments (3,000,000) (7,300,000) (2,000,000)
Fixed Cost (500,000) (500,000) (500,000)
Profit $500,000 $200,000 ($100,000)
The fixed costs are distributed equally among the services and are not avoidable if one of services is dropped.
What is the profitability of the remaining services if all services with losses are dropped? Explain fully with spreadsheet illustration and text discussion.