Music Makers Company, a wholesale distributor, is considering discontinuance of its line of CDs due to stiff competition from MP3 downloads and other new, technologically advanced recordings. The variable cost of its CDs last year was about 40 percent of its CD revenue, and the allocated fixed cost equaled $100,000 per year. Last year's sales were $250,000, but it is expected that in the future, annual revenue will drop by 20 percent and variable costs will rise to 50 percent of revenue (because of price reductions). Will CDs still be profitable for the company?

Music Makers Company, a wholesale distributor, is considering discontinuance of its line of CDs due to stiff competition from MP3 downloads and other new, technologically advanced recordings. The variable cost of its CDs last year was about 40 percent of its CD revenue, and the allocated fixed cost equaled $100,000 per year. Last year's sales were $250,000, but it is expected that in the future, annual revenue will drop by 20 percent and variable costs will rise to 50 percent of revenue (because of price reductions). Will CDs still be profitable for the company?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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