Natures Finest Co. buys wood and uses it to make tables, chairs, and cabinets. A single block of wood can produce three chairs, one table, and one cabinet. Natures Finest is charged a processing cost of P4,500, P1,000, and P200 to sell the cabinets, tables, and chairs it extracts from a single block of wood. The cabinet sells for P6,000, the table for P1,500, and the chair for P500.

Natures Finest has a system that allocates the cost of a single block of wood to each of its three product lines by proportion of total number by block. The chief finance officer of the company believes this is a good natural allocation scheme.

Recently, the price of wood has risen to P2,000 per block. The CFO is worried that at least one of the products will not generate a profit due to the increase.

Based on the foregoing:

1. Natures Finest is a price-taker in both the input and output markets. Yields per block of wood are fixed. If any of three product lines makes losses, the CFO believes the company has no choice but to discontinue selling that line. Do you agree with the CFO? Why or why not? Explain your answer thoroughly.
2. What is the correct allocation scheme that Natures Finest should be using? What is the cost of wood allocated to each product line under the correct allocation scheme? Show your computations thoroughly.