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Gonsalvez Company has three product A,B and C. The following information is available:

            A                 B                  C

Sales $60 000    $38 000   $26 000

Variable costs  36 000  18 000  12 000

Contribution margin 24 000  20 000  14 000

Fixed expenses 12 000  15 000  16 000

Profit(loss)  $12 000  $5 000  $(2 000)

 

Gonsalvez Company is thinking of dropping product line C because it is reporting an operating loss.Assumed fixed costs are avoidable, if Gonsalvez Company drops product line C and does not replace it, what effect will this have in profit? What will be the overall profit of the organisation.Show Calculations and provide your justification.

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