Question
Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82
Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the companys performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the companys total fixed costs would be reduced by 15 percent.
Segmented income statements appear as follows: Green Beans Sweet Peas Tomatoes
Sales $ 86,500 $ 122,000 $ 141,700
Variable costs 59,200 109,400 114,300
Contribution margin $ 27,300 $ 12,600 $ 27,400
Fixed costs allocated to each product line 11,780 17,840 25,360
Operating profit (loss) $ 15,520 $ (5,240) $ 2,040
Required: a. Prepare a differential cost schedule. b. Should Gilbert Canned Produce drop the sweet pea product line?
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