Mini Case 7| Hindt Chocolate Company is interested in acquiring another chocolate maker, Russell Hover Chocolates (RHC). RHC recently led for bankruptcy. Hindt believes that with their experience in the chocolate industry in Canada they can generate a profit from this bankrupt company. Also, RHC has accounts with all of the drug store chains across Canada, a segment of the market where Hindt is not currently competing. The following GAAP Income Statement shows the summarized results of RHC for the past year: Sales $767,190 Cost of goods sold 689,598 Gross margin $77,592 Selling and admin. (xedfcommon) 98,000 Operating income $20,4081 RHC makes two products: chocolate bars and boxed chocolates. They use the absorption method ofcosting and provided the information above to Hindt. The controller of RHC, when presenting this nancial information, suggested that Hindt discontinue the chocolate bar product line after the acquisition. The company uses just-in-time (JIT) to manage inventories and, as a result, beginning and ending inventories are kept near zero (note: at the beginning and end of the prior year, inventories had zero values). As part of its merger & acquisition due diligence process, and prior to making the nal decision to acquire this company, Hindt's nance experts were given access to RHC's detailed managerial accounting (production) data below. After reviewing the nancial data and company operations, Hindt management is certain they can eliminate 40% of RHC's fixed direct manufacturing overhead and 80% of the selling and administrative costs. Information provided by RHC: Sales nice Product costs: Direct labour $29,400 $7,200 Variable overhead $24,500 $4,680 $166,600 $230,400 Fixed overhead is applied to both products based on total direct labour dollars at a rate of $6. 15 for bars and $6.39 for boxed chocolates. Required: 1. Calculate the unit cost of each product as RHC would have, using the absoggtion costing model. What is a likely reason for RHC's controller's suggestion to eliminate the bars (round to 2 decimal places)? 2. Calculate the contribution margin of each product and prepare a contribution margin income statement (using the format below assuming sales equals production). Your income statement should reveal the overall impact of Hindt management's expected savings resulting from the merger. Would you suggest that the chocolate bars be discontinued under Hindt's control? Russell Hover Chocolates Restated Segmented Income Statement For prior year Boxed Bar Chocolates Total Sales $0 $0 $0 Variable costs 0 0 0 Contribution margin $0 $0 $0 Direct xed costs 0 0 0 Segment margin $0 $0 $0 Selling and administrative 0 Operating income $0