Question
Crisp has 4 product lines: milk, ice cream, yogurt, and butter. The allocated fixed costs are based on units sold and are unavoidable. Demand of
Crisp has 4 product lines: milk, ice cream, yogurt, and butter. The allocated fixed costs are based on units sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. 40% of the fixed costs are direct, and the other 60% are allocated. Results of June follow:
|
| Milk | Ice Cream | Yogurt | Butter | Total |
| Units sold | 2,000 | 500 | 400 | 200 | 3,000 |
| Revenue | $10,000 | $20,000 | $10,000 | $20,000 | $60,000 |
| Variable departmental costs | 6,000 | 13,000 | 4,200 | 4,800 | 28,000 |
| Fixed costs | 5,000 | 2,000 | 3,000 | 7,000 | 17,000 |
| Net income (loss) | ($1,000) | $5,000 | $2,800 | $8,200 | $15,000 |
Prepare an analysis of the effect of dropping the milk product line.
Should the company drop the milk product line?
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