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sveta [45]
3 years ago
8

Keith Inc. has 4 product lines: sour cream, ice cream, yogurt, and butter. Demand of individual products is not affected by chan

ges in other product lines. 30% of the fixed costs are direct, and the other 70% are allocated. Results of June follow:
Sour Cream Ice Cream Yogurt Butter Total
Units sold 2,000 500 400 200 3,100
Revenue $ 10,000 $ 20,000 $ 10,000 $ 20,000 $ 60,000
Variable departmental costs 6,000 13,000 4,200 4,800 28,000
Fixed costs 5,000 2,000 3,000 7,000 17,000
Net income (loss) $ (1,000) $ 5,000 $ 2,800 $ 8,200 $ 15,000
Required:
a. 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).

Business
2 answers:
Nikitich [7]3 years ago
5 0

Answer:

<u>K</u>eith Inc would lose    $2,500 if it drops  sour cream

Explanation:

The impact of the dropping the sour cream will examined by considering the following relevant cash flows:

<em>                                 </em><em>              Incremental analysis</em>

<em>Lost contribution from the sales                                              $</em>

(10,000 - 6000)                                                                     4,000

<em>Savings in the direct fixed cost</em>

(30% × 5000)                                                                       <u>   (1,500)</u>

Net loss in contribution                                                     <u>     2,500</u>

<u>K</u>eith Inc would lose    $2,500 if it drops  sour cream

aleksley [76]3 years ago
3 0

There will be decrease in profit if dropping of sour cream. So that means Keith Inc would lose $4,000.00

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