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 $5 25 per case, has not had the market success that managers expected, and the company is considering dropping Bubs The product line income statement for the past 12 months follows Table 1 Revenue $14,682,150 Costs Manufacturing costs $14,440,395 Allocated corporate costs 734,108 15,174,503 Product line margin $ (492,353) Allowance for tax ( 20 ) 98,470 Product line profit (loss) $ (393,883) 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 Table 2 Corporate Revenue Corporate Overhead Costs Most recent year $106,750,000 $5,337,500 Previous year $76,200,000 $4,221,000 Assume the fixed corporate overhead is $1,454,000 in each year None of these fixed costs are specifically traceable to Bubbs 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 above, Mr Andre provides you with the following data on product costs for Bubs Table 3 Monthly Production and Production Costs Month Cases Prod Costs 1 207,000 1,139,828 2 217,200 1,161,328 3 214,800 1,169,981 4 228,000 1,185,523 5 224,400 1,187,827 6 237,000 1,208,673 7 220,200 1,183,699 8 247,200 1,226,774 9 238,800 1,225,226 10 252,600 1,287,325 11 250,200 1,241,760 12 259,200 1,272,451 Table 4 Regression Analysis of Table 3 Data Adjusted R squared 0 957 Variable Coefficient t p t Significance Std Err Units 2 236 15 71 001 0 1423 Constant 682,300 20 53

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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

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 $5.25 per case, has not had the market success that managers expected, and the company is considering dropping Bubs.

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

Table 1

Revenue		$14,682,150
*Costs*
Manufacturing costs	$14,440,395
Allocated corporate costs	734,108	15,174,503
Product-line margin		$ (492,353)
Allowance for tax (@20%)		98,470
Product-line profit (loss)		$ (393,883)

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:

Table 2

	Corporate Revenue	Corporate Overhead Costs
Most recent year	$106,750,000	$5,337,500
Previous year	$76,200,000	$4,221,000

Assume the fixed corporate overhead is $1,454,000 in each year. None of these fixed costs are specifically traceable to Bubbs.

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 above, Mr. Andre provides you with the following data on product costs for Bubs:

Table 3

Monthly Production and Production Costs
Month	Cases	Prod. Costs
1	207,000	1,139,828
2	217,200	1,161,328
3	214,800	1,169,981
4	228,000	1,185,523
5	224,400	1,187,827
6	237,000	1,208,673
7	220,200	1,183,699
8	247,200	1,226,774
9	238,800	1,225,226
10	252,600	1,287,325
11	250,200	1,241,760
12	259,200	1,272,451