The Draper Company is considering dropping its Dream bug toy due to continuing losses. Revenue and cost data on the toy for the past year follow: Sales of 15,000 units P 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss (P 10,000) If the toy were discontinued, then Draper could avoid P8,000 per year in fixed costs. 1. Under the given conditions, the change in annual operating income from discontinuing the production and sale of Doombugs would be: 2. Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent to discontinuing Doombugs or continuing the production and sale of Doombugs? 3. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a P16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the change in annual operating income from discontinuing the production and sale of Doombugs would be:
The Draper Company is considering dropping its Dream bug toy due to continuing losses. Revenue and cost data on the toy for the past year follow:
|
|
Sales of 15,000 units |
P 150,000 |
|
|
Variable expenses |
120,000 |
|
|
Contribution margin |
30,000 |
|
|
Fixed expenses |
40,000 |
|
|
Net operating loss |
(P 10,000) |
If the toy were discontinued, then Draper could avoid P8,000 per year in fixed costs.
1. Under the given conditions, the change in annual operating income from discontinuing the production and sale of Doombugs would be:
2. Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent to discontinuing Doombugs or continuing the production and sale of Doombugs?
3. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a P16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the change in annual operating income from discontinuing the production and sale of Doombugs would be:
4. Suppose again that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a P16,000 increase in the contribution margin received from these other toys. At what selling price per Doombug should Draper be indifferent (on economic grounds) between dropping the Doombug or continuing its production and sale? (All other conditions remain the same, including annual sales of 15,000 units of the Doombug toy.)
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