Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines.How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products?
A) 5,000 units.
B) 6,000 units.
C) 6,500 units.
D) 7,000 units.Units required = (275,000 + 25,000 + 120,000)/60 = 7,000 units.

Question

Quizplus · Accepted Answer

To determine the number of Tams that would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products, we need to use the following formula: Units required = (total fixed costs + total variable costs + additional contribution margin from other products)/contribution margin per unit of Tam. Plugging in the numbers from the question, we get: Units required = (275,000 + 25,000 + 120,000)/60 = 7,000 units. Therefore, the company would need to sell 7,000 Tams next year to break even with the option of discontinuing the product and enjoying the increase in contribution margin from other product lines. So, the best choice is D.

Assume That Discontinuing the Tam Product Would Result in a $120,000