Data Bank Inc. (DBI) offers web hosting and cloud computing services to businesses and individuals. Management is concerned that offering services to individuals is negatively impacting the profits of the company.
The following information is available relative to DBI's financial position:
Revenue from businesses: $7,500,000
Contribution margin percentage from businesses: 40%
Operating income/ (loss) from businesses: $1,500,000
Revenue from individuals: $500,000
Contribution margin percentage from individuals: (15%)
Operating income/(loss) from individuals: ($250,000)
Management at DBI believes that the storage capacity and other fixed resources currently used for individual services could be used to service more businesses and generate profits similar to current business contracts. Prices charged to businesses are proportional to the fixed cost required by the service.
By how much would Operating Income increase or decrease if the individual services were discontinued?

Question

Data Bank Inc. (DBI) offers web hosting and cloud computing services to businesses and individuals. Management is concerned that offering services to individuals is negatively impacting the profits of the company. 
The following information is available relative to DBI's financial position:
Revenue from businesses: $7,500,000
Contribution margin percentage from businesses: 40%
Operating income/ (loss) from businesses: $1,500,000
Revenue from individuals: $500,000
Contribution margin percentage from individuals: (15%)
Operating income/(loss) from individuals: ($250,000)
Management at DBI believes that the storage capacity and other fixed resources currently used for individual services could be used to service more businesses and generate profits similar to current business contracts. Prices charged to businesses are proportional to the fixed cost required by the service.
By how much would Operating Income increase or decrease if the individual services were discontinued?

Quizplus · Accepted Answer

The Answer of Data Bank Inc. (DBI) offers web hosting and cloud computing services to businesses and individuals. Management is concerned that offering services to individuals is negatively impacting the profits of the company. 
The following information is available relative to DBI's financial position:
Revenue from businesses: $7,500,000
Contribution margin percentage from businesses: 40%
Operating income/ (loss) from businesses: $1,500,000
Revenue from individuals: $500,000
Contribution margin percentage from individuals: (15%)
Operating income/(loss) from individuals: ($250,000)
Management at DBI believes that the storage capacity and other fixed resources currently used for individual services could be used to service more businesses and generate profits similar to current business contracts. Prices charged to businesses are proportional to the fixed cost required by the service.
By how much would Operating Income increase or decrease if the individual services were discontinued?