Scenario: RYT (aka RotYourTeeth) Candy Company sells lollipops. Last year the co

Question

Scenario: RYT (aka RotYourTeeth) Candy Company sells lollipops.
Last year the company sold 10,000,000 lollipops for $1,000,000.
The Variable Costs were $350,000 and the Net Profits were $100,000
Administration has directed management to double profits in the next year.

ASSIGNMENT: DETERMINE whether RYT should discontinue a product line to increase profitability.

RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors: Cherry, Lemon, and Blueberry. Further analysis indicates that 20% of COGS is variable and 30% of Selling and Admin expenses are variable.   

Given the following data for the month of September, RYT is considering discontinuing the Blueberry flavor. What would you advise? Support your position.

Cherry   Lemon   Blueberry     
Sales $18,000   $26,000   $9,000     
COGS 7,000   12,000   4,000     
Gross Profit 11,000   14,000   5,000     
Selling and Admin Exp 7,000   8,000   6,000     
Net Income 4,000   6,000   (1,000)     

Explanation / Answer

On discontinuing of blueberry there will be loss of $6400 . Hence it should not be discontinued.

Sales (1) 9000 COGS (2) 4000 Variable 20% (3) 800 Fixed (4) 3200 Seliing and adminb exp (5) 6000 Variable 30% (6) 1800 Fixed (7) 4200 Contribution margin(1-3-6) 6400

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