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Question - Crisp has 4 product lines: milk, ice cream, yogurt, and butter. The allocated fixed costs are based on units sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. 40% of the fixed costs are direct, and the other 60% are allocated. Results of June follow:
Milk
Ice Cream
Yogurt
Butter
Total
Units sold
2,000
500
400
200
3,000
Revenue
$10,000
$20,000
$60,000
Variable departmental costs
6,000
13,000
4,200
4,800
28,000
Fixed costs
5,000
7,000
17,000
Net income (loss)
($1,000)
$5,000
$2,800
$8,200
$15,000
Prepare an analysis of the effect of dropping the milk product line.
Should the company drop the milk product line?
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