Product emphasis and keep or drop; product breakeven; relevant information

The statement of profit or loss information for Kallapur and Trombley Cotton Growers follows:

Required

(a) Using the general decision rule, which product should the entity emphasise? Support your answer with calculations. (b) Using the general decision rule, should the entity drop Regular (assuming no changes in demand for other products)? Support your answer with calculations. Show how operating income would change if Regular were dropped.

(c) At what point (in bales) would the managers be indifferent to dropping Regular? In other words, what is the breakeven point for Regular? (d) What other information would you want before you make a decision about whether to drop Regular?

Total 300 bales Premium Regular 100 bales Fancy 100 bales 100 bales Sales units Sales Variable costs Contribution margin Production line fixed costsa Corporate costs (allocated) Total fixed costs $2200 1 400 800 640 90 730 $ 70 $1 600 1 000 600 725 80 805 $ (205) $1800 1080 720 520 105 625 $ 95 $5600 3 480 2 120 1 885 275 2160 $ (40) Operating income (loss) "If the entity drops the product, these costs are no longer incurred None of these corporate costs is expected to change if a product line is dropped