Company ABC manufactures two environmentally-friendly products labeled Anti-Covid (AC) and Yes-Vaccine (YV) which have become the trademark of this company. Due to the detrimental impact of the pandemic, the company is considering dropping product YV. To discuss the possibility further, the Accounting Manager is given the opportunity to present his view on this matter using accounting data and predictions.

Below are the considerations presented by the manager:

• The sales of product AC are predicted to increase by 40% if the plan of dropping YV is executed.

• Dropping product YV will save monthly equipment rental amounting $100 per month; while the other existing equipment can be used to produce additional units of product AC.

• The company will have to say goodbye due to work termination to one employee with a salary of $200 per month if the production of YV is dropped.

• Allocation of other fixed costs will continue despite the options made by the company.

  The Accounting Manager has also prepared a condensed, budgeted monthly income statement for both products to facilitate further discussions as follows.

	Product AC	Product YV	Total
Sales	$10,000	$ 8,000	$18,000
Direct Materials	2,500	2,000	4,500
Direct Labor	2,000	1,200	3,200
Equipment Rental	300	2,600	2,900
Other Allocated Overhead	1,000	2,100	3,100
Operating Income	$4,200	$ 100	$ 4,300

Required:

1. Prepare the relevant revenue and relevant cost analysis using the incremental approach to help the company determine the financial effect of dropping product YV.

2. What would you suggest to the company based on the analysis?