The following information pertains to Salamandre Company's three products: $\begin{array}{lrrr}&A&B&C\
\text { Unit sales per year } & 250 & 400 & 250 \
\text { Selling price per unit } & \$ 9.00 & \$ 12.00 & \$ 10.00 \
\text { Variable costs per unit } & 3.60 & 9.00 & 11.00\
\text { Unit contribution margin } & \$ 5.40 & \$ 3.00 & \$(1.00) \
\text { Contribution margin ratio } & 60 \% & 25 \% & (10) \%
\end{array}$ Assume that product C is discontinued and the extra space is rented for $300 per month. All other information remains the same as the original data. Annual profits will
A)remain the same.
B)increase by $250.
C)decrease by $250.
D)increase by $550.

Question

Quizplus · Accepted Answer

Discontinuing product C removes its negative contribution to profit, which is $250 (250 units * -$1 per unit) annually. Renting the extra space adds $3,600 ($300 per month * 12 months) annually. The net effect is an increase in annual profits by $3,850 ($3,600 - (-$250)). However, since none of the provided options match this calculation, the closest correct option based on the given choices is an increase, which is option D, assuming a misunderstanding in the calculation or a typo in the options.

The Following Information Pertains to Salamandre Company's Three Products Assume That Product C Is Discontinued and the Extra Space