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SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000). Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by

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Answer:

$11,000

Explanation:

Calculation of the amount that Discontinuing Catalog Sales should increase the company profits

First step

Online sales were $100,000 × Percentage of sales increase 10% =$10,000

Second step

Online Sales contribution margin/ Online sales

=$60,000/$100,000

=0.6

Third step

$10,000×0.6

=$6,000

Last step is to find the amount in which Discontinuing Catalog Sales should increase the company profits

$6,000+ Catalog Sales segment margin $5,000 =$11,000

Therefore Discontinuing Catalog Sales should increase the company profits by $11,000

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