Startrack Company produces and sells two items, product A and product B. As the profitability of product B is not satisfactory, the company is considering dropping product B. The management has estimated the financial effect of dropping product B as follows: Sales of the remaining product A will increase by 40%. Dropping product B will allow the company to cancel its monthly equipment rental costing $100 per month. The other existing equipment will be used for additional production of product A. Most of the direct labour costs incurred in the production of product B are fixed in the short term, and only one employee earning $200 per month can be terminated if the product is dropped. . Fixed overhead is an allocated cost which will remain unchanged regardless of whether product B is retained or dropped. The following is the budgeted monthly income statement for both products in summary form: Product A Product B Total Sales Direct materials Direct labour Equipment rental Fixed overhead $10,000 $ 8,000 $18,000 2,500 2,000 4,500 2,000 1,200 3,200 300 2,600 2,900 1,000 2,100 3,100 Operating profits $ 4,200 $ 100 $ 4,300