A can manufacturing company produces and sells three different types of cans: Versions X, Y, and Z. A high-level, simplified profit/loss statement for the company is provided here. Corporate overhead (rent, general and administrative expense, etc.) is allocated equally among the three product versions. After reviewing the statement, company managers are concerned about the loss on Version Z and are considering ceasing production of that version. Should they do so? Why or why not?
Version X Version Y Version Z Total
Net Can Sales $180,000 $240,000 $105,000 $525,000
Variable Costs 105,000 135,000 82,500 322,500
Corporate Overhead 60,000 60,000 60,000 180,000
Contribution to Profit 15,000 45,000 37,500 22,500