discontinue

 RYT Candy Company sells lollipops.

 

Last year the company sold 10,000,000 lollipops for $1,000,000.

 

The Variable Costs were $350,000 and the Net Profits were $100,000

 

Administration has directed management to double profits in the next year.

   

ASSIGNMENT:  DETERMINE whether RYT should discontinue a product line to increase profitability.

   

RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors: 

Cherry

,

Lemon

, and

Blueberry

.   Further analysis indicates that 20% of

COGS

is variable and 30% of Selling and Admin expenses are variable.  

   

Given the following data for the month of September, RYT is considering discontinuing the

Blueberry

flavor.  What would you advise?  Support your position.

     

Blueberry

COGS

7,000

4,000 6,000

	Cherry	Lemon
Sales	$1 8,000	$2 6,000	$9,000
	7,000	12,000		4,000
Gross Profit	11,000	14,000	5,000
Selling and Admin Exp	8,000		6,000
Net Income	(1,000)