Salem Broom Company is considering dropping their mop line of business, due to a slump in sales. In order to evaluate this decision they are preparing a continue or discontinue differential analysis. They have collected the following relevant costs and revenues in manufacturing the mops: Total Variable Costs are $09.000, Total Fixed Costs are $37,000, and Revenues from the mop line are $120,000.

Which of the following will happen if Salem Broom discontinues selling their mops?

a.) Salem will gain $37,000 in profit

b) Selem will gain 509,000 in profit

Smem will lepe $120.000 in profit

44. Dalam se $31,000 in o

To determine the effect of discontinuing the mop line for Salem Broom Company, let's conduct a differential analysis by calculating the change in profits if the mop line is discontinued. 

Here's a breakdown of the relevant information:

- **Revenues from mops**: $120,000
- **Total variable costs**: $9,000
- **Total fixed costs**: $37,000

If the mop line is discontinued:

1. **Revenues**: Salem Broom will lose the $120,000 in revenue from selling the mops.
2. **Variable Costs**: Salem Broom will save the $9,000 in variable costs associated with manufacturing the mops.
3. **Fixed Costs**: Fixed costs of $37,000 will remain, since fixed costs do not typically go away unless specifically tied to the mop production.

Now, let's calculate the net effect:

### Current Profit from Mop Line:
\[
\text{Profit from mops} = \text{Revenues} - \text{Variable Costs} - \text{Fixed Costs} = 120,000 - 9,000 - 37,000 = 74,000
\]
This means that continuing the mop line generates a profit of $74,000.

### If they discontinue:
- Loss of $120,000 in revenues
- Savings of $9,000 in variable costs
- The $37,000 fixed cost remains.

### Change in Profit:
\[
\text{Net effect of discontinuing} = -120,000 + 9,000 = -111,000
\]
This means Salem Broom will experience a reduction in profit of $111,000 by discontinuing the mop line.

Given this, let's evaluate the options:

- a) **Salem will gain $37,000 in profit**: **Incorrect** (they won’t gain, they will lose).
- b) **Salem will gain $9,000 in profit**: **Incorrect**.
- c) **Salem will lose $120,000 in profit**: **Incorrect**, this ignores the savings in variable costs.
- d) **Salem will lose $111,000 in profit**: **Correct**.

Thus, the correct answer is **d) Salem will lose $111,000 in profit**.

Do you need any further details or clarification?

Here are 5 related questions you might want to explore:
1. What are fixed and variable costs in a business?
2. How does a company calculate the break-even point for a product line?
3. What is differential analysis and when is it used in decision-making?
4. How can a business manage or reduce fixed costs effectively?
5. What are the potential risks of discontinuing a product line?

**Tip:** Fixed costs remain constant regardless of production levels, but they may still impact profitability decisions when discontinuing a product line.

Salem Broom Company is considering dropping their mop line of business, due to a slump in sales. In order to evaluate this decision, they are preparing a continue or discontinue differential analysis. They have collected the following relevant costs and revenues in manufacturing the mops: Total Variable Costs are $9,000, Total Fixed Costs are $37,000, and Revenues from the mop line are $120,000. Which of the following will happen if Salem Broom discontinues selling their mops? a) Salem will gain $37,000 in profit, b) Salem will gain $9,000 in profit, c) Salem will lose $120,000 in profit, d) Salem will lose $111,000 in profit.

Explore how to conduct a differential analysis to determine the impact of discontinuing a product line. Learn how to calculate the profit from the mop line for Salem Broom Company, factoring in revenues, variable costs, and fixed costs. Suitable for high school students (Grades 10-12).

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