Exercise 4.33

The income statement information for Monty follows:

		Premium			Regular				Royal			Total
Sales units		60 kg			60 kg				60 kg			180 kg
Sales		$	1,320		$	960			$	1,080		$	3,360
Variable costs			840			600				648			2,088
Contribution margin			480			360				432			1,272
Production line fixed costs*			384			435				312			1,131
Corporate costs (allocated)**			54			48				63			165
Total fixed costs			438			483				375			1,296
Operating income (loss)		$	42		$	(123	)		$	57		$	(24	)

*		If the company drops the product, these costs are no longer incurred.
**		None of these corporate costs are expected to change if a product line is dropped.

Using the general decision rule, which product should the corporation emphasize?

Emphasis order Regular, then Premium, then RoyalRegular, then Royal, then PremiumRoyal, then Premium, then RegularPremium, then Royal, then RegularPremium, then Regular, then RoyalRoyal, then Regular, then Premium

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Using the general decision rule, should the corporation drop Regular (assuming no changes in demand for other products)? Show how operating income would change if Regular were dropped. (Show a loss preceded by a minus sign, e.g. -200 or (200).)

Regular should notshould be dropped.

Operating income/(loss)

$

At what point (in kg) would the managers be indifferent to dropping Regular? In other words, what is the breakeven point for Regular? (Round answer to 0 decimal places, e.g. 125.)

Breakeven point

kg