Air Mall produces a catalog that is placed in airline seatbacks during internati

Question

Air Mall produces a catalog that is placed in airline seatbacks during international flights. Passengers typically skim the catalog during flights and can buy selected merchandise from flight attendants, duty and tax free, while over international waters. Below is a report for a recent period: Total Beverages Jewelry Electronics Sales   $         2,600,000 $         1,400,000 $            500,000 $            700,000 Variable expenses             1,635,000               980,000               200,000               455,000 Contribution margin $            965,000 $            420,000 $            300,000 $            245,000 Fixed expenses               900,000               300,000               300,000               300,000 Income (loss) $             65,000 $            120,000 $                      - $            (55,000) The fixed expense is the amount paid for printing the catalog and paying the airline to include the item in seatbacks. Management is evaluating discontinuing the sale of electronics products. Fixed costs will not change; however, jewelry sales are expected to increase by 30%. Determine if overall income will be improved if the sale of electronics products is ceased. Air Mall produces a catalog that is placed in airline seatbacks during international flights. Passengers typically skim the catalog during flights and can buy selected merchandise from flight attendants, duty and tax free, while over international waters. Below is a report for a recent period: Total Beverages Jewelry Electronics Sales   $         2,600,000 $         1,400,000 $            500,000 $            700,000 Variable expenses             1,635,000               980,000               200,000               455,000 Contribution margin $            965,000 $            420,000 $            300,000 $            245,000 Fixed expenses               900,000               300,000               300,000               300,000 Income (loss) $             65,000 $            120,000 $                      - $            (55,000) The fixed expense is the amount paid for printing the catalog and paying the airline to include the item in seatbacks. Management is evaluating discontinuing the sale of electronics products. Fixed costs will not change; however, jewelry sales are expected to increase by 30%. Determine if overall income will be improved if the sale of electronics products is ceased.

Explanation / Answer

Jewellery incrementa 30% Electronics Total Gross Total $ 150,000 $ 0 $ 150,000 $ 2,050,000 $ 60,000 0 $ 60,000 $ 1,240,000 $ 90,000 $ 0 $ 90,000 $ 810,000 $ 0 300000 $ 300,000 $ 900,000 $ 90,000 $ -300,000 $ -210,000 $ -90,000 remarks: after closing electronics it results in total loss of $90000 Total Beverages Jewelry Electronics Sales $ 2,600,000 $ 1,400,000 $ 500,000 $ 700,000 Variable expenses $ 1,635,000 $ 980,000 $ 200,000 455,000 Contribution margin $ 965,000 $ 420,000 $ 300,000 $ 245,000 Fixed expenses $ 900,000 $ 300,000 $ 300,000 300,000 Income (loss) $ 65,000 $ 120,000 $ 0 $ -55,000

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