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Sugartown, Inc. has three product lines in its retail stores: cookies, cakes, and candy. The allocated fixed costs are based on units sold and are
- Sugartown, Inc. has three product lines in its retail stores: cookies, cakes, and candy. The allocated fixed costs are based on units sold and are unavoidable. Results of June follow:
| Cookies | Cakes | Candy | Total |
Units sold | 2,400 | 1,600 | 2,000 | 6,000 |
Revenue | 25,000 | 50,000 | 75,000 | 150,000 |
Variable department costs | 12,000 | 37,000 | 41,000 | 90,000 |
Direct fixed costs | 6,200 | 8,000 | 19,000 | 33,200 |
Allocated fixed costs | 5,000 | 6,500 | 7,000 | 18,500 |
Operating income (loss) | $1,800 | ($1,500) | $8,000 | $8,300 |
Demand of individual products is not affected by changes in other product lines. Prepare an incremental analysis of the effect of dropping the cakes product line. Determine the operating income or loss for Sugartown after the cakes product line is dropped.
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