Production Opportunity Cost Question
A can manufacturing company produces and sells 3 different types of cans: Version X, Y & Z. Corporate Overhead is equally allocated among the 3 product versions. After reviewing the below statement, company managers are concerned about the loss on version Z and are considering ceasing production of that version. Should they do so? Why or why not?
Ver X Ver Y Ver Z Total
Net Can Sales $180,000 $240,000 $105,000 $525,000
Variable Costs $105,000 $135,000 $82,500 $322,500
Corporate- $60,000 $60,000 $60,000 $180,000
Overhead
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Contribution $15,000 $45,000 -$37,500 $22,500
To Profit
A can manufacturing company produces and sells 3 different types of cans: Version X, Y & Z. Corporate Overhead is equally allocated among the 3 product versions. After reviewing the below statement, company managers are concerned about the loss on version Z and are considering ceasing production of that version. Should they do so? Why or why not?
Ver X Ver Y Ver Z Total
Net Can Sales $180,000 $240,000 $105,000 $525,000
Variable Costs $105,000 $135,000 $82,500 $322,500
Corporate- $60,000 $60,000 $60,000 $180,000
Overhead
------------------------------------------------------------------------------------
Contribution $15,000 $45,000 -$37,500 $22,500
To Profit