Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 18

Pepper’s Automotive has further analyzed the exhaust division into three products, exhaust pipes, intake valves, and intake pipes. The income statement is available below. What is the change in profit in both the short run and long run by dropping intake valves from their product line?

	Exhaust Pipes	Intake Valves	Intake Pipes
Net revenues	$500,000	$300,000	$200,000
Variable costs	50,000	150,000	100,000
Contribution margin	450,000	150,000	100,000
Controllable fixed costs	50,000	50,000	0
Controllable margin	400,000	100,000	100,000
Noncontrollable fixed costs	100,000	150,000	50,000
Contribution by profit center	$300,000	$(50,000)	$ 50,000

Step 1 of 6

Controllable margin: