Solution-Estimate the impact on profit

Estimate the impact on profit

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Reference no: EM133050760

Question - The segmented income statement for Cork Ltd's three product lines is provided below:

	Azure	Vert	Gules	Total
Sales revenue	$320,000	$46,250	$75,000	$441,250
Less: Variable expenses	$278,750	$11,250	$56,250	$346,250
Contribution margin	$41,250	$35,000	$18,750	$95,000
Less: Direct fixed expenses
Depreciation	$12,500	$3,750	$3,000	$18,750
Salaries	$23,750	$21,250	$19,500	$65,000
Segment margin	$5,000	$10,000	($3,750)	$11,250

The management of Cork Ltd is considering whether to keep or drop Gules product line. All variable costs are relevant. All depreciation on the equipment is dedicated to the product lines and none of the equipment can be sold. Each product line has a different supervisor whose position would be eliminated if the associated product line is dropped.

Required -

1. Estimate the impact on profit that would result from dropping Gules and explain why Cork Ltd should keep or drop Gules.

2. Assume that 20% of Azure customers would stop buying the product if Gules is no longer available, estimate the impact on profit that would result from dropping Gules and explain why Cork Ltd should keep or drop Gules.

3. Explain the difference between tactical and strategic decisions.

Reference no: EM133050760

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Estimate the impact on profit

Reference no: EM133050760

Reference no: EM133050760

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