The following information pertains to Ewing Company's three products: $\begin{array}{lrrrr}
& \underline{\text { D }}&\underline{E} &\underline{F} \
\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\
\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \
\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \
\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30
\end{array}$

-Assume that product F is discontinued and the space used to produce product F is rented for $600 per month.What will be the effect on monthly profits?

Question

The following information pertains to Ewing Company's three products: $\begin{array}{lrrrr}
& \underline{\text { D }}&\underline{E} &\underline{F} \
\text { Unit sales per month } & \underline{900} & \underline{1.400} & \underline{800} \\
\text { Selling price per unit } & \$ 6.00 & \$ 11.25 & \$ 7.50 \
\text { Variable costs per unit } & \underline{3.00} & \underline{9.00} & \underline{7.80} \
\text { Unit contribution margin } & \$ 3.00 & \$ 2.25 & \$(0.30
\end{array}$
 
-Assume that product F is discontinued and the space used to produce product F is rented for $600 per month.What will be the effect on monthly profits?

Quizplus · Accepted Answer

Discontinuing product F removes its negative contribution margin of $0.30 per unit for 800 units, which equals a loss of $240 per month. Renting the space adds $600 per month. The net effect is an increase in monthly profits of $840 ($600 - (-$240)).

The Following Information Pertains to Ewing Company's Three Products -Assume That Product F Is Discontinued and the Space Used