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Fluffy Bunny Corp has three product lines
Fluffy Bunny Corp has three product lines. Fluffy Bunnys, Cuddly Kittens and Slimy Snakes. The company is considering eliminating the Snake line. The Snake line has a CM of $90,000 per year. With the loss of the product line the fixed costs of the building ($10,000), the managment staff ($40,000) and the utilities ($30,000) will be eliminated. What will the change in the firms total profit be as a result of dropping this line.
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$90,000 |
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($90,000) |
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$20,000 |
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($20,000) |
Expert Solution
The change in the firms total profit be as a result of dropping this line = Saving of fixed Cost - loss of Contribution margin (CM)
= ( $40,000 + $30,000) - $90000
= $70,000 - $90,000
=($20,000) Answer.
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