Question

SPS Products has two divisions - Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was $5000. Online sales were $100,000. Online sales CM was $60000, and its segment margin was $40000. If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%. Discontinuing Catalog Sales should increase company profits by...

Answer 1

To calculate the increase in company profits, we need to calculate the profit margin for the Catalog Sales and Online Sales segments. If Catalog Sales are discontinued, Online Sales are estimated to increase by 10%, resulting in a 4% increase in company profits.

Step-by-step explanation:

To calculate the increase in company profits, we need to calculate the current profit margin of the Catalog Sales segment and the estimated increase in profit margin of the Online Sales segment if Catalog Sales are discontinued.

First, we calculate the profit margin for the Catalog Sales segment, which is $5000 divided by the sales revenue of Catalog Sales. Unfortunately, the sales revenue for Catalog Sales is not provided, so we cannot calculate the profit margin for this segment.

However, we can calculate the profit margin for the Online Sales segment. The profit margin is $40000 divided by the sales revenue of Online Sales, which is $100,000. Therefore, the profit margin for the Online Sales segment is 40%.

If Catalog Sales are discontinued, it is estimated that Online Sales will increase by 10%. To calculate the increase in profit margin, we multiply the current profit margin of 40% by 10%, which gives us a 4% increase.

Therefore, discontinuing Catalog Sales should increase company profits by 4%.