Gary Company produces three lines of greeting cards: scented, musical, and regular. A segmented income statement for the last full fiscal year is as follows:

Direct material $ 28.50

Direct labor 16.00

Variable overhead 11.00

Fixed overhead 17.50

Total $ 73.00

President Gary Jones is considering dropping the Scented product line. Assume that 85% of Scenteds direct fixed expenses would be eliminated if it were dropped.

Required: a. Should the Scented product line be dropped? What is the difference in profitability between keeping Scented and dropping Scented?

b. Gary talks to VP of Sales Garth Stevenson who says that if the Scented line is dropped she expects that sales of the Regular card line will decline by 25% and Musical card sales will decline by 5%. Redo your analysis of relevant benefits and costs for keeping vs. dropping the Scented cards. Which alternative results in higher profits and by how much?