Keith Inc. has 4 product lines: sour cream, ice cream, yogurt, and butter. Deman

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: Yogurt 400 Sour Cream Ice Cream Total Butter 200 Units sold Revenue Variable departmental costs Fixed costs Net income (loss) 500 3,100 $20,000 $10,000 20,000 60,000 4,800 28,000 17,000 $ (1,000) 5,000 2,800 $ 8,200 $15,000 2,000 $10,000 6,000 5,000 13,000 2,000 4,200 3,000 7,000 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.

Explanation / Answer

Incremental revenue -10000 Incremental variable cost savings 6000 Incremental fixed cost savings 1500 =5000*30% Incremental decrease in profits if dropped -2500

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