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Excel #5

Elimination of a Segment

Fall 2018

Mike Company has three products, each are operated as separate segments. Mike Company allocates all of its corporate fixed costs to each of its operating segments. Mike Companys CEO, after looking at this past quarters results has indicated that something needs to be done. He believes that PRODUCT A is losing money and has solicited your help in evaluating several options. Below are the results of the past quarter for each of the product segments and the Company Total.

	Product A	Product B	Product C	Total
Sales	$820,000	$800,000	$480,000	$2,100,000
- Variable Costs	$650,000	$500,000	$250,000	$1,400,000
Contribution Margin	$170,000	$300,000	$230,000	$700,000
Segment Fixed Costs	$140,000	$130,000	$120,000	$390,000
Allocated Corporate Fixed Costs	$80,000	$80,000	$80,000	$240,000
Pre-tax Profit	($50,000)	$90,000	$30,000	$70,000

REQUIRED: Determine the Company Total under each of the below, mutually exclusive options:

Eliminate Product A

Eliminate Product B

Eliminate Product C

Eliminate Product A and Use that capacity to increase Product B Sales by 60%

Eliminate Product A and Use that capacity to increase Product B Sales by 25% and Product C Sales by 35%.

Given the options in parts 1-5, which provides the company with the highest total profit?

Product A Product B Product C Total Variable Costs Contribution Margin Segment Fixed Costs $820,000 $800,000 $480,000 $2,100,000 $650,000 $00,000 $250,000 $1400,000 $170,000 $300,000 $230,000 $700,000 $140,000 $130,000 $120,000 $390,000 Allocated Corporate Fixed Costs $80,000 $80,000 $80,000 $240,000 Pre-tax Profit ($50,000)$90,000 $30,000 $70,000

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