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Keith Inc. has 4 product lines: sour cream, ice cream, yogurt, and butter. Demand of individual products is not affected by changes in other
Keith Inc. has 4 product lines: sour cream, ice cream, yogurt, and butter. Demand of individual products is not affected by changes in other product lines. 25% of the fixed costs are direct, and the other 75% are allocated. Results of June follow: Sour Cream Ice Cream Yogurt Butter Units sold 2,000 500 400 200 Total 3,100 Revenue $10,000 $20,000 $10,000 $20,000 $60,000 Variable 6,000 13,000 4,200 4,800 28,000 department costs Fixed costs 5,000 2,000 3,000 7,000 17,000 Net income (loss) $(1,000) $5,000 $2,800 $8,200 $15,000 What is the incremental effect on profits if the sour cream product line is dropped? Should Keith Inc. drop the sour cream product line?
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