|
A candy company makes Chocolate and Peanut clusters which produced the following results last year.
|
|
Chocolate
|
Peanut
|
Total
|
|
|
Sales
|
$500,000
|
$600,000
|
$1,100,000
|
|
|
Variable costs
|
420,000
|
350,000
|
$770,000
|
|
|
Contribution margin
|
80,000
|
250,000
|
$330,000
|
|
|
Direct fixed costs
|
50,000
|
15,000
|
$65,000
|
|
|
Allocated fixed costs
|
45,000
|
55,000
|
$100,000
|
|
|
Net Income
|
($15,000)
|
$180,000
|
$165,000
|
|
A. Should the Chocolate be dropped?
B. Explain your answer for item (a).
C. What would happen to overall net income if the chocolate was dropped?
D. Assume the chocolate clusters are not dropped and the peanut lost 15% of its sales. What would be the effect on net income?