Macaulay Company has three product lines-D,E,and F.The following information is available:
$$\begin{array} { | l | c | l | l | }
\hline & \text { D } & { \text { E } } & { \text { F } } \
\hline \text { Sales } & \$ 90,000 & \$ 50,000 & \$ 30,000 \
\hline \text { Variable costs } & ( 40,000 ) & ( 10,000 ) & ( 10,000 ) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 40,000 & 20,000 \
\hline \text { Fixed expenses } & (15,000 ) & ( 10,000 ) & ( 24,000 ) \
\hline \text { Operating profit (loss) } & \$ 35,000 & \$ 30,000 & (\$ 4000 ) \
\hline
\end{array}$$
Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.Assuming fixed costs are unavoidable,if Macaulay Company drops product line F and rents the space formerly used to produce product F for $20,000 per year,total profit will be:

Question

Macaulay Company has three product lines-D,E,and F.The following information is available:
$$\begin{array} { | l | c | l | l | } 
\hline & \text { D } & { \text { E } } & { \text { F } } \
\hline \text { Sales } & \$ 90,000 & \$ 50,000 & \$ 30,000 \
\hline \text { Variable costs } & ( 40,000 ) & ( 10,000 ) & ( 10,000 ) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 40,000 & 20,000 \
\hline \text { Fixed expenses } & (15,000 ) & ( 10,000 ) & ( 24,000 ) \
\hline \text { Operating profit (loss) } & \$ 35,000 & \$ 30,000 & (\$ 4000 ) \
\hline
\end{array}$$
Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.Assuming fixed costs are unavoidable,if Macaulay Company drops product line F and rents the space formerly used to produce product F for $20,000 per year,total profit will be:

Quizplus · Accepted Answer

To determine the total profit if product line F is dropped, we need to calculate the contribution margin for product lines D and E, and subtract the fixed costs and any additional costs (such as rent for the space formerly used to produce product F).

Total contribution margin = Sales - Variable costs

For Product line D: 
Contribution margin per unit = $30 - $20 = $10 
Total contribution margin = 10,000 units x $10 = $100,000

For Product line E: 
Contribution margin per unit = $25 - $15 = $10 
Total contribution margin = 12,000 units x $10 = $120,000

Therefore, the total contribution margin for the remaining two product lines is $220,000.

Next, we subtract the fixed costs: 
Fixed costs = $100,000 
Total profit before rent = $220,000 - $100,000 = $120,000

Finally, we subtract the additional cost of rent: 
Total profit after rent = $120,000 - $20,000 = $100,000

Therefore, the best choice is D, with a total profit of $61,000.

Macaulay Company Has Three Product Lines-D,E,and F Macaulay Company Is Thinking of Dropping Product Line F Because