. Dropping a Product. Bob Leverenz, an old prospector, runs a side business. He buys rattlesnakes from "snake hunters" in west Texas, paying an average of \(\$ 10\) per snake. Each snake comes complete. He produces canned snake meat, cures hides, and makes souvenir rattles. At the end of a recent season, Bob is evaluating his financial results:

Cost of snakes assigned to each product is based on a ratio of cost to revenue. Processing expenses are direct costs. Common expenses are allocated on the basis of direct processing expenses and are Bob's basic living expenses. Bob has a philosophy of "every tub on its own bottom" and is determined to cut his losses on rattles.
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1. Is he really "losing" money on rattles? Explain.
2. An old miner has offered to buy every rattle "as is," without processing, for \(\$ 0.50\) per rattle. Will this eliminate the "loss" problem and improve Bob's profitability? Explain your reasoning.

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Meat Hides Rattles Total Sales $ 30,000 $ 8,000 $2,000 Cost of snakes (18,000) (4,800) (1,200) Gross profit... $ 12,000 $ 3,200 $ 800 Processing expenses. $ (6,000) $ (900) $ (600) Common expenses.. (4,000) Operating expenses $(10,000) (600) $(1,500) Income (loss) $ 2,000 $ 1,700 $ (200) (400) $(1,000) $ 40,000 (24,000) $ 16,000 $ (7,500) (5,000) $(12,500) $ 3,500