1. Epicure Products Company reports the results for three lines as follows.

	Hypogeal	Epigeal	Aerie	Total Company
Sales	$100,000	120,000	96,000	316,000
Variable Costs	50,000	90,000	48,000	188,000
Contribution Margin	50,000	30,000	48,000	128,000
Fixed Costs	40,000	48,000	38,400	126,400
Operating Income	10,000	-18,000	9,600	1,600

Required:

-Management is considering dropping Epigeal product line ot boost earnings. What would happen to earnings if the Epigeal product line were dropped? (Hint: No calculation necessary)

-Now assume that 50% of any product lines fixed costs would be eliminated if that product line were eliminated, and sales of other product line would be increased by 10%. Would it be profitable to drop Epigeal? How much would operating income change for the company?

-Assuming your analysis indicated that it would increase income to drop Epigeal, what are some reasons you might keep it anyway?