1-alarm: units produced and sold 100,000 sales $229,000 cost of goods sold 191,0
ID: 2434603 • Letter: 1
Question
1-alarm:units produced and sold 100,000
sales $229,000
cost of goods sold 191,000
gross margin 38,000
selling and administrative costs 31,000
profit $7000
5-alarm:
units produced and sold 300,000
sales $837,000
COGS 631,000
GM 206,000
SAAC 225,000
Profit -$19,000
should the 5-alarm be discountinued?
I put it should not be discountinued but I cant seem to get the mathematical problem right i came up with an answer that they should not because they would have a negative profit in 1-alarm if that is their only product.
Explanation / Answer
In the details of alarm 5, SAAC is given as $225,000, which includes the Fixed SAAC cost also. We have to find the part of Fixed SAAC cost and exclude it from the total amount. Once we get Variable SAAC, we should reduce it from GM, and show the net margin being given by this alarm. Then your answer that it should not be discountinued, will be complete, and focus on the net margin, which is given by this alarm.
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