Question

Rock Inc. has three divisions, Granite, Lime and Nina. All fixed costs are unavoidable Following is the income statement for the previous year:

	Granite		Lime				Nina				Total
Sales	$	509,000		$	273,000			$	226,000		$	1,008,000
Variable Costs		175,000			124,300				100,300			399,600
Contribution Margin		334,000			148,700				125,700			608,400
Fixed Costs (allocated)		275,000			166,250				103,750			545,000
Profit Margin	$	59,000		$	(17,550	)		$	21,950		$	63,400

a. What would Rock’s profit margin be if the Lime division were dropped?



b. What would Rock’s profit margin be if the Nina division were dropped?

Answer 1

a)

Current profit margin	$      63,400
Add: Loss on from Lime division	$      17,550
Less: Lime division fixed cost	$ (166,250)
Rock's profit margin after Lime division dropped	$   (85,300)

b.

Current profit margin	$      63,400
Less: profit on from Nina division	$   (21,950)
Less: Nina division fixed cost	$ (103,750)
Rock's profit margin after Nina division dropped	$   (62,300)

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