Music Makers Company, a wholesale distributor, is considering discontinuance of its line of CDs due to stiff competition from MP3 downloads and other new, technologically advanced recordings. The variable cost of its CDs last year was about 40 percent of its CD revenue, and the allocated fixed cost equaled $100,000 per year. Last year's sales were $250,000, but it is expected that in the future, annual revenue will drop by 20 percent and variable costs will rise to 50 percent of revenue (because of price reductions). Will CDs still be profitable for the company?

Music Makers Company, a wholesale distributor, is considering discontinuance of its line of CDs due to stiff competition from MP3 downloads and other new, technologically advanced recordings. The variable cost of its CDs last year was about 40 percent of its CD revenue, and the allocated fixed cost equaled $100,000 per year. Last year's sales were $250,000, but it is expected that in the future, annual revenue will drop by 20 percent and variable costs will rise to 50 percent of revenue (because of price reductions). Will CDs still be profitable for the company?

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Proudction Costs

Section: Chapter Questions

Problem 8SQP

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