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Product planning: Calculate operating profit; maximize profits

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A company is currently operating at 80 percent capacity.

(sales in millions)
Segment
North South East West

Sales $30 $40 $20 $10
Less variable cost ($12) ($8) ($21) ($8)
Contribution margin $18 $32 ($1) $2
Less fixed costs ($9) ($12) ($6) ($3)
Operation profit (loss) $9 $20 ($7) ($1)

A. What is the current operatng profit for the company as whole?

B. Assuming that all fixed cost are unavoidable, if company eliminated the unprofitable segments, what would be the new operating profit for the company as a whole be?

C. What options does management have to maximize profits?

D. What qualitative factors do you think management should consider before making this decision?

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Solution Summary

The expert examines product planning to calculate the operating profits in order to maximize profits.

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