Kahlenberg Ltd. has fixed costs of € 600,000.00. A product that sells for € 50.00 is a candidate for being dropped from the product mix. The variable cost of the product is € 40.00 per unit. The company estimates that all of the variable cost avoidable and 10 percent of the fixed costs are avoidable if the business drops the product from its product mix. If it continues to provide the product, sales is expected to be 5,000 units.
Should Kahlenberg Ltd. drop the product?

Question

Kahlenberg Ltd. has fixed costs of € 600,000.00. A product that sells for € 50.00 is a candidate for being dropped from the product mix. The variable cost of the product is € 40.00 per unit. The company estimates that all of the variable cost avoidable and 10 percent of the fixed costs are avoidable if the business drops the product from its product mix. If it continues to provide the product, sales is expected to be 5,000 units.

Should Kahlenberg Ltd. drop the product?

Accepted Answer

If Kahlenberg Ltd would drop the product the profit would increase by € 10,000.00.

Answer

Kahlenberg Ltd. should drop the product to increase the profit.

Answer

Kahlenberg Ltd. should drop the product because in this case the business could avoid variable cost of ¢ 40,000.00.

Answer

Kahlenberg Ltd. should not drop the product because in this case the business would lose € 50,000 of contribution.

Crowdly

Kahlenberg Ltd. has fixed costs of € 600,000.00. A product that sells for € 50.0...

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