Question

Keith Inc. has 4 product lines: sour cream, ice cream, yogurt, and butter. Demand of individual products is not affected by changes in other product lines. 30% of the fixed costs are direct, and the other 70% are allocated. Results of June follow: Ice Cream 500 Units sold Revenue Variable departmental costs Fixed costs Net income (loss) Sour Cream 2,000 $10,000 6,000 5,000 $ (1,000) $20,000 13,000 2,000 $ 5,000 Yogurt 400 $10,000 4,200 3,000 $2,800 Butter 200 $20,000 4,800 7,000 $ 8,200 Total 3,100 $60,000 28,000 17,000 $15,000 Prepare an incremental analysis of the effect of dropping the sour cream product line. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Calculation of Net Income If Sour Cream Product Line dropped: Revenue ($60,000 - $10,000) Variable Departmental Costs ($28000-$6000) Fixed Costs (Fixed Costs will not changes with dropping a product Line) Net Income if Dropping of Sour Cream $ 50,000.00 22,000.00 17,000.00 11,000.00 Preparation of Incremental Analysis for effect of Dropping the Sour Cream Product Line: Incremental Revenue ($50,000 - $60,000) Incremental Variable Departmental Costs ($22000-$28000) Incremental Fixed Costs (Fixed Costs will not changes with dropping a product Line) Decrease in Profit if Dropping of Sour Cream (10,000.00) (6,000.00) (4,000.00) %24 %24