Problem 7-12 Pukalani Unlimited produces and sells three lines of carpet: economy, standard, and deluxe. Jeff Choi, the chief financial officer of the company, has prepared the following report on the profitability in the past year. In the report, fixed costs are allocated based on yards of carpet Economy Standard Deluxe Total Yards of carpet Sales Less variable costs (dye, yarn, labor, etc.) Less fixed costs (depreciation, supervisory salaries, etc.) Profit (loss) 30,600 45,900 76,500 153,000 $326,000 $698,000 $1,551,600 $2,575,600 173,700 430,600 921,900 1,526,200 812,200 $(10,140) $23,740 $223,600 $237,200 162,440 243,660 406,100 Upon seeing the report, Matt Williams, the president of Pukalani Unlimited, suggested that the company should consider dropping the economy grade and concentrate on the two other lines. Jeff replied, however, that would lead to the cost allocation death spiral