Question

Balser Company manufactures and sells a product called JYMP. Results of last year for the manufacture and sale of JYMP's are as follows:

Sales (8,000 JYMPs at £120 each) £960,000

Less costs:

Variable production costs 464,000

Sales commissions (15% of sales) 144,000

Salary of product line manager 100,000

Fixed product line advertising 160,000

Fixed manufacturing overhead 132,000

Total costs 1,000,000

Net operating loss £(40,000)

Balser anticipates no change in the operating results for JYMP in the foreseeable future. Balser is reexamining all of its product lines and is trying to decide whether or not to discontinue the manufacture and sale of JYMPs. Total fixed manufacturing overhead costs would not be affected by a decision to drop any one product line.

Assume that discontinuing the JYMP line would result in a £158,000 increase in the contribution margin of other product lines.

How many JYMPs would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products?

a. 8,550 units.

b. 8,318 units.

c. 12,500 units.

d. 9,500 units.

Answer 1

Answer: c.12,500 Units

Explanation :

Sales		£960,000
Variable Production costs	£464,000
Sales commissions (15% of sales)	£144,000
Total variable expenses		£608,000
Contribution Margin		£352,000
Contribution Margin per unit		£44.00
Additional contribution required for conituning JYMP	(158,000+40,000)	£198,000
Additional units required to sell for conituning JYMP	(£198,000/44)	4500 units
Total units required to sell for conituning JYMP	(8,000+4,500)	12,500 units