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Should discontinue a product line to increase profitability

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Reference no: EM131563229

Scenario:  RYT (aka RotYourTeeth) Candy Company sells lollipops.

Last year the company sold 10,000,000 lollipops for $1,000,000.

The Variable Costs were $350,000 and the Net Profits were $100,000.

Administration has directed management to double profits in the next year.

ASSIGNMENT: DETERMINE whether RYT should discontinue a product line to increase profitability.

RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors:  Cherry, Lemon, and Blueberry.  Further analysis indicates that 30% of COGS is variable and 30% of Selling and Admin expenses are variable.  

Given the following data for the month of September, RYT is considering discontinuing the Blueberry flavor. What would you advise?  Support your position.

 

Cherry

Lemon

Blueberry

Sales

$18,000

$26,000

$19,000

COGS

7,000

12,000

14,000

Gross Profit

11,000

14,000

5,000

Selling and Admin Exp

7,000

8,000

6,000

Net Income

4,000

6,000

(1,000)

Reference no: EM131563229

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