Question

lisah inc manufactures golf clubs in three models. for the year the big mart line has a net loss of $10,000 from sales $200,000, variable cost $180,000 and fixed costs $30,000. If the Big mart line is eliminated, $20,000 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated.

Answer 1

Situation 1: sales revenue from big mart line
	Amount
Sales big smart line	$        200,000
Less: Variable cost	$        180,000
Contribution	$          20,000
Less: fix cost	$          30,000
Profit(loss)	$        (10,000)
Situation 2: Big mart line eliminated
	Amount
Sales revenue	$                   -
Less: fixed cost unavoidable	$          20,000
Profit (loss)	$        (20,000)

In this case we have two situations. Situation-1 makes loss $10000 and situation-2 makes $20000 loss. So we should not eliminate big mart line.