Pepper's Automotive has further analyzed the exhaust division into three products, exhaust pipes, intake valves, and intake pipes. The income statement is available below. What is the change in profit in both the short run and long run by dropping intake valves from their product line?
Exhaust Pipes Intake Valves Intake Pipes
|
Net revenues
|
$500,000
|
$300,000
|
$200,000
|
|
Variable costs
|
50,000
|
150,000
|
100,000
|
|
Contribution margin
|
450,000
|
150,000
|
100,000
|
|
Controllable fixed costs
|
50,000
|
50,000
|
0
|
|
Controllable margin
|
400,000
|
100,000
|
100,000
|
|
Noncontrollable fixed costs
|
100,000
|
150,000
|
50,000
|
|
Contribution by profit center
|
$300,000
|
$ (50,000)
|
$ 50,000
|