Harding, Inc., produces two types of cough syrup: Basic and Multi-Symptom. Of the two, Basic is the more popular. Data concerning the two products follow:

Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver.

Required:
1. Prepare a traditional segmented income statement, using a unit-level overhead rate based on direct labor hours. Using this approach, determine whether the Basic cough syrup product line should be kept or dropped.
2. Prepare an activity-based segmented income statement. Repeat the keep-or-drop analysis using an ABC approach.LO1

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Basic Multi- Symptom Unused Capacity Units of Purchase Expected sales (in cases) Selling price per case 46,000 12,000 $72 $192 Direct labor hours 38,000 12,000 As needed Machine hours Receiving orders 11,500 3,000 2,500 250 500 250 500 Packing orders 700 1,200 100 250 Material cost per case Direct labor cost per case $50 $80 $12 $15 Advertising costs $100,000 $160,000