The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below: Based on this information, the company should:

Question

The Mansfield Company manufactures and sells two lines of fishing rods. During the most recent accounting period, the Pro line and the Novice line sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:  Based on this information, the company should:

Quizplus · Accepted Answer

To determine whether the Novice line should be eliminated, we need to compare its contribution to the company's overall profitability.

The total contribution margin of the Pro line can be calculated as follows:

15,000 units * ($120 selling price - $80 variable cost) = $1,800,000

The total contribution margin of the Novice line can be calculated as follows:

2,000 units * ($60 selling price - $40 variable cost) = $40,000

Adding these two contribution margins gives a total contribution margin of $1,840,000. This means that the Novice line contributes $40,000 to the company's overall profitability, so it should not be eliminated.

Option A can be disregarded because it suggests eliminating the Novice line without considering its marginal contribution to the company's overall profitability. Option C is incorrect because the contribution margin of the Novice line is $40,000, not $55,000. Option D is incorrect because we can determine whether the Novice line should be eliminated based on the information provided.

The Mansfield Company Manufactures and Sells Two Lines of Fishing