Carpets Unlimited produces and sells three lines of carpet: economy, standard, and deluxe. Jeff Choi, the chief financial officer of the company, has prepared the following report on the profitability in the past year. In the report, fixed costs are allocated based on yards of carpet.

Upon seeing the report, Matt Williams, the president of Carpets Unlimited, suggested that the company should consider dropping the economy grade and concentrate on the two other lines. Jeff replied, however, that that would lead to the cost allocation death spiral.

Required
a. Revise the report assuming the company drops the economy grade.
b. If either the standard or the deluxe grades is reporting a loss in part a, revise the report assuming that ft is also dropped.
c. Explain what Jeff means by the cost allocation deathspiral.€

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Economy Standard Deluxe Total 75,000 50 Yards of carpet Sales Less variable costs 30,000 45,000 150,000 $300,000 $675,000 $1,500,000 $2,475,000 (dye, yarn, labor, etc) 00000 155,000 150,000 405,000 Less fixed costs (depreciation, 160,000 S 10,000) supervisory salaries, etc.) 250,000 20,000 200,000 S 210,000 400,000 810,000 Profit (loss)