Greenview Dairies produces a line of organic yogurts for sale at supermarkets and specialty markets in the Southeast. Economic conditions and changing tastes have resulted in slowing demand growth. After recently expanding capacity, the company is now operating at 65 percent of the new capacity. The company is considering dropping one of the yogurt flavors, mixed berry, in hopes of improving profitability. If the mixed berry variety is dropped, the revenue associated with it will be lost and the related variable costs saved. The production manager estimates that the fixed costs will also be reduced by 30 percent.

The following quarterly product line income statements (in thousands of dollars) are available: 

Required

a. Prepare a schedule like the one in Exhibit 4.8 to indicate whether Greenview Dairies should drop the mixed berry line.

b. One of the sales reps for Greenview heard about the possibility of dropping the mixed berry line and warned the marketing manager that it was a mistake to consider the three products independently. Based on experience from stocking local grocery shelves, he knows that when customers stop seeing a particular flavor, they sometimes switch to a competitor, even for flavors Greenview might still sell. The financial staff sent a request to marketing asking for estimates of possible losses on the sales of other products. The marketing group responded that perhaps 5 percent of vanilla sales and 10 percent of peach sales would be lost if the mixed berry flavor is dropped. Would this new information change your recommendation in requirement (a)?

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Product Sales Variable costs.. Contribution margin. Fixed costs allocated to each product line.. Operating profit (loss). Vanilla Peach $21,190 $33,280 14,300 26,065 $6,890 $7,215 3,055 $ 3,835 4,615 $2,600 Mixed Berry $27,820 25,090 $ 2,730 3,900 $(1,170)