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6 December, 07:33

The Widget Company's produces several brands. Total sales for Brand "A" are forecasted to be $950,000. The portion of the companies' fixed costs that are assigned to Brand "A" is $300,000. Brand "A" sells for $310. Its variable cost per unit is $238. Should the Widget company stop producing Brand "A"? (Assume that fixed costs will be reassigned to other brands).

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  1. 6 December, 07:56
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    As the contibution of the product is positive the company shoudl continue to produce it in the short-term

    If the brand is discontinued then, as the fixed csot are common they will bean additional burden for the other brands. CUrrently Brand A covers most of theri allocated fixed cost

    Removing it will decrease the income by the amount of their contribution

    $220,645,1

    They should be continued.

    Explanation:

    contribution margin per widget:

    310 - 238 = 72

    contribution margin ratio:

    72 / 310 = 0,232258064516129

    Contribution at 950,000 sales:

    950,000 x 0.232258 = 220645,1
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