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Managerial Accounting

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Predicting Impact on Profits if Discontinue a Product Line

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Phantos Inc. is considering eliminating their Grape Flavor product line, as it generates a rather small profit and has declining market demand. The fixed costs that are currently allocated to the Grape Flavor product line will be re-allocated to the Lime & Peanut Flavor product lines if Grape is eliminated.

What will be the impact on profits if Grape is eliminated?

A

Profits will decrease by the contribution margin of the Grape Flavor product line.

B

Profits will increase by the contribution margin of the Grape Flavor product line.

C

Profits will increase by the product profit margin of the Grape Flavor product line.

D

Profits will decrease by the product profit margin of the Grape Flavor product line.