The Widget Company's produces several brands. Total sales for Brand "A" are forecasted to be $950,000. The portion of the companies' fixed costs that are assigned to Brand "A" is $300,000. Brand "A" sells for $310. Its variable cost per unit is $238. Should the Widget company stop producing Brand "A"? (Assume that fixed costs will be reassigned to other brands).

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Business

Landin Hurst

16 May, 10:20

The Widget Company's produces several brands. Total sales for Brand "A" are forecasted to be $950,000. The portion of the companies' fixed costs that are assigned to Brand "A" is $300,000. Brand "A" sells for $310. Its variable cost per unit is $238. Should the Widget company stop producing Brand "A"? (Assume that fixed costs will be reassigned to other brands).

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Simone Hanson · Answer 1

As the contibution of the product is positive the company shoudl continue to produce it in the short-term

If the brand is discontinued then, as the fixed csot are common they will bean additional burden for the other brands. CUrrently Brand A covers most of theri allocated fixed cost

Removing it will decrease the income by the amount of their contribution

$220,645,1

They should be continued.

Explanation:

contribution margin per widget:

310 - 238 = 72

contribution margin ratio:

72 / 310 = 0,232258064516129

Contribution at 950,000 sales:

950,000 x 0.232258 = 220645,1