Question
John's Fancy Chocolate Shop has two product lines; milk chocolate bars and chocolate covered almonds. His company is not doing as well as he hoped
John's Fancy Chocolate Shop has two product lines; milk chocolate bars and chocolate covered almonds. His company is not doing as well as he hoped as shown in the following income statement:
Sales | 100,000 |
Variable Expenses | 60,000 |
Fixed Expenses | 50,000 |
Operating Loss | (10,000) |
Sales for chocolate bars and chocolate almonds are $60,000 and $40,000, respectively. Variable expenses for chocolate almonds are $25,000. Since chocolate almonds is a newer product, the company has been advertising more aggressively. Therefore, the traceable fixed costs for this product line are $30,000. Corporate fixed costs total $10,000. Required: What is the impact to operating income if the company were to drop the chocolate almonds product line? Should the company drop the product line? (4 marks)
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