Duvel Ltd. currently manufactures three products: X, Y, and Z. Results from the
ID: 2538057 • Letter: D
Question
Duvel Ltd. currently manufactures three products: X, Y, and Z. Results from the previous fiscal year for these products are presented below:
Product X
Product Y
Product Z
Sales - units
7417
5184
9686
Sales price per unit
$80
$44
$61
Variable cost per unit
$57
$30
$31
Fixed costs
$90700
$50893
$156217
Duvel is considering eliminating Product Y in order to focus their efforts on its other two products.
The discontinuation of Product Y is expected to cause the following changes:
A 19% increase in the production and sales of Product X
A 6% decrease in the production and sales of Product Z
61% of the fixed costs of Product Y will be eliminated
What is the incremental (change in) income of the company if Product Y is discontinued?
Select one:
a. $-34414
b. $-26554
c. $-57599
d. $46022
Product X
Product Y
Product Z
Sales - units
7417
5184
9686
Sales price per unit
$80
$44
$61
Variable cost per unit
$57
$30
$31
Fixed costs
$90700
$50893
$156217
Explanation / Answer
Answer
Current Income Statement
Product
Total
X
Y
Z
Sales price per unit
80
44
61
Variable cost per unit
57
30
31
Sales - units
7,417
5,184
9,686
Sales
1,412,302
593,360
228,096
590,846
Less: Variable Cost
878,555
422,769
155,520
300,266
Contribution Margin
533,747
170,591
72,576
290,580
Less: Fixed costs
297,810
90,700
50,893
156,217
Net Income
235,937
79,891
21,683
134,363
It is mentioned in the question that Sale of X will Increase by 19% AND sales of Z will decrease by 6%.
And 61% of the Fixed cost of Y will be eliminated.
New X sales = (7,417 + 19%)
= 8,826.23 Units
New X sales = 8,826 Units
New Z Sales = (9,686 – 6%)
= 9104.84 Units
New Z Sales = 9,105 Units
Y’s Fixed Cost which will be still there = Y’s Fixed Cost * 39% (100 – 61%)
= 50893 * 39%
= 19,848.27
Y’s Fixed Cost which will be still there = 19,848
Proposed Income Statement
Product
Total
X
Y
Z
Sales price per unit
80
-
61
Variable cost per unit
57
-
31
Sales - units
8,826
-
9,105
Sales
1,261,494
706,098
-
555,395
Less: Variable Cost
785,345
503,095
-
282,250
Contribution Margin
476,148
203,003
-
273,145
Less: Fixed costs
Traceable Fixed Cost
246,917
90,700
156,217
UnTraceable Fixed Cost
19,848
Net Income
209,383
112,303
-
116,928
Conclusion
As we can see that there is a decrease in the Net Income, So
Decrease in Income = Old Net Income – New Net Income
= 235,937 – 209,383
Decrease in Income = $26,554
Answer = (26,554) or -26,554
Current Income Statement
Product
Total
X
Y
Z
Sales price per unit
80
44
61
Variable cost per unit
57
30
31
Sales - units
7,417
5,184
9,686
Sales
1,412,302
593,360
228,096
590,846
Less: Variable Cost
878,555
422,769
155,520
300,266
Contribution Margin
533,747
170,591
72,576
290,580
Less: Fixed costs
297,810
90,700
50,893
156,217
Net Income
235,937
79,891
21,683
134,363
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.