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Variable Costing adding Product Line

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Variable Costing & Segmented Income Statement

TYZ Company currently manufactures two products, Y and Z. The company has the capacity to make one additional product, with two (P1 and P2) currently under consideration. The forecasted annual sales and related costs for each "new" product are attached.

(I'd like to see formulas as well so that I can duplicate the process myself please)

- With the provided information, produce a variable costing income statement that inlcudes products Y, Z, and P1.

- With the provided information, produce a variable costing income statement that includes products Y, Z and P2.

- Reduce P2's variable production costs by 55% of sales. How does that income statement change?

- If I could add both products 1 and 2, by way of either product Y or Z being dropped from production. Would it make sense to? What does that look like numerically?

- Which product should be added into production?

- Which product would make me more money?

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The solution provides different combination to introduce new product to existing lines and its impact on Income statement.

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