Question - Woodruff Ltd. sells three rocking chairs (Unfinished, Stained and Painted) that use common facilities. The relevant data concerning these three products follow.
|
|
Unfinished
|
Stained
|
Painted
|
Total
|
|
Sales
|
$10,000
|
$30,000
|
$40,000
|
$80,000
|
|
Variable costs
|
5,000
|
20,000
|
25,000
|
50,000
|
|
Contribution Margin
|
$5,000
|
$10,000
|
$15,000
|
$30,000
|
|
Fixed costs
|
5,000
|
15,000
|
30,000
|
50,000
|
|
Operating loss
|
$0
|
$(5,000)
|
$(15,000)
|
$(20,000)
|
Required: If $15 000 of the fixed costs allocated to the Painted rocking chairs are avoidable and the company drops Painted rockers from its product line, what will be the impact on profit?