Problem
The Jolly Jay Chocolate Candy Company produces three types of chocolate: dark chocolate, chocolate crunch, and chocolate almond. Company president Mickey Wacha was reviewing the accounting reports from Financial Analyst Juanita Cruz. After a brief discussion with company executives, Mr. Wacha wanted to know if the chocolate almond line should be dropped as it appears unprofitable. Below is an excerpt from the report Mr. Wacha reviewed.
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Jolly Jay Chocolate Company Income Analysis
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Total
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Dark Chocolate
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Chocolate Crunch
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Chocolate Almond
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Sales
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$45,000
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$20,000
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$15,000
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$10,000
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Variable Costs
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($28,000)
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($10,000)
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($10,000)
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($8,000)
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Contribution Margin
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$17,000
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$10,000
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$5,000
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$2,000
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Allocated Fixed Costs
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($15,000)
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($5,000)
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($5,000)
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($5,000)
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Operating Profit
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$2,000
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$5,000
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$0
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($3,000)
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* Common fixed costs are allocated equally to the product lines.
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Complete the following using a word processor and submit.
1. Assuming there is no alternative uses for the chocolate almond product line, what do you think will happen if the chocolate almond line is dropped? Is it a good idea?
2. How might the information be presented such that it does not result in distortion?
3. Write a brief memo outlining your decision and in your memo, go through a decision model.