Three different product lines are sold by M/s Mercury Mills Ltd. Product A contributes 20 per cent of its revenue to fixed costs and profits. Product B contributes 10 per cent, and Product C...

Three different product lines are sold by M/s Mercury Mills Ltd. Product A contributes 20 per cent of its revenue to fixed costs and profits. Product B contributes 10 per cent, and Product C contributes 50 per cent. The products sell for the following prices: Product A, `80; Product B, `20; Product C, `30. The company earned a net profit of `5,00,000 before income tax last year by selling 50,000 units of Product A, 1,50,000 units of Product B, and 60,000 units of Product C. The sales manager believes that the profit picture can be improved by eliminating product B and concentrating the sales efforts on products A and C. He sees an opportunity to increase the sales of products A to 70,000 units, but admits that product C will probably sell at the same amount next year. Prepare a projected profit and loss statement using sales manager’s assumption. Do you agree with him? Explain what would cause the profit to increase or decrease, as the case may be.