I need help with part C and Part D.

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $6.05 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the past 12 months follows:

Revenue$14,706,150

Costs

Manufacturing costs$14,448,395

Allocated corporate costs (@5%)735,30815,183,703

Product-line margin$(477,553)

Allowance for tax (@20%)95,510

Product-line profit (loss)$(382,043)

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow:

Corporate Revenue . Corporate Overhead Costs

Most recent year$122,750,000 . $6,137,500

Previous year77,800,000 5,180,065

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs:

Month Cases Production Costs

1 223,000 $1,165,840

2 225,200 1,187,340

3 222,900 1,195,993

4 244,000 1,211,535

5 224,500 1,213,839

6 253,000 1,234,685

7 228,250 1,209,711

8 255,200 1,252,786

c.Suppose Luke has a requirement that all products have to earn 5 percent of sales (after tax and corporate allocations) or they will be dropped. How many cases of Bubbs does Mr. Andre need to sell to avoid seeing Bubbs dropped?

d.Assume all costs and prices will be the same in the next year. If Luke drops Bubbs, how much will Luke's profits increase or decrease? Assume that fixed production costs can be avoided if Bubbs is dropped.

9 246,800 1,251,238

10 260,650 1,263,337

11 258,200 1,267,772

12 267,200 1,298,463