question 1&2

1. Big Company makes several products, but is considering dropping its line of stereos. Last year sales were $2,000 and variable costs included direct materials ($400), direct labor ($500), variable overhead ($300), and variable SG&A ($200). Total fixed costs are $850 of which $400 are direct and $450 indirect fixed costs. Should Big Co. discontinue production of stereos? 2. Lekker Company has already manufactured 20,000 gallons of raw milk at a cost of $1 per gallon. The 20,000 gallons can be sold at this stage for $40,000. Alternatively, it can be processed further for an additional cost of $15,000 and converted into 1,000 gallons of cream and 19,000 gallons of skim milk. The sales price for the cream is $15 per gallon and the sales price of the skim milk is $2.50 per gallon. Should Lekker Company process further or not