DETERMINE whether RYT should discontinue a product line to increase profitability
Scenario: RYT (aka RotYourTeeth) Candy Company sells lollipops.
Last year the company sold 10,000,000 lollipops for $1,000,000.
The Variable Costs were $350,000 and the Net Profits were $100,000
Administration has directed management to double profits in the next year.
ASSIGNMENT: DETERMINE whether RYT should discontinue a product line to increase profitability.
RYT has been evaluating its various product lines and is specifically analyzing one location that produces three flavors: Cherry, Lemon, and Blueberry. Further analysis indicates that 20% of COGS is variable and 30% of Selling and Admin expenses are variable.
Given the following data for the month of September, RYT is considering discontinuing the Blueberry flavor. What would you advise? Support your position.
Cherry Lemon Blueberry
Sales $18,000 $26,000 $9,000
COGS 7,000 12,000 4,000
Gross Profit 11,000 14,000 5,000
Selling and Admin Exp 7,000 8,000 6,000
Net Income 4,000 6,000 (1,000)