The Arielle Company Reported the Following Results for the Manufacture

question 53

Essay

The Arielle Company reported the following results for the manufacture and sale of one of its products known as Controllers during the most recent year.
$$\begin{array} { l r } \text { Sales } ( 6,500 \text { Controllers at } \$ 130 \text { each } ) & \$ 845,000 \\\text { Cost of sales } & 390,000 \\\text { Distribution costs } & 65,000 \\\text { Advertising expense } & 275,000 \\\text { Salaries } & 25,000 \\\text { Building costs } & \underline{145,000}\\\text { Operating loss } & \underline{\$ ( 55,000 )}\end{array}$$
The Arielle Company is trying to determine whether or not to discontinue the manufacture and sale of Controllers. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The building costs represent the costs of production facilities and equipment that the Controllers product shares with other products produced by Arielle. If the Controllers product were dropped, there would be no change in the building costs of the company. Management has determined that discontinuing the manufacture and sale of Controllers will have no effect on the company's other product lines. Determine the change in operating profits that will happen if the manufacture and sale of Controllers is discontinued.

---

Definitions:

Advertising

Advertising is a marketing communication that employs an openly sponsored, non-personal message to promote or sell a product, service or idea.

Firm's Profits

The financial gains realized by a company after subtracting all expenses, taxes, and costs from total revenue.

Efficiency

The ability to accomplish a task with the minimum expenditure of time and resources.