Reference no: EM13492240

Quinton Corporation produces and sells two types of chili: 1-Alarm and 5-Alarm. Operating performance for the most recent quarter is:

Management is puzzled by these results because they spent $120,000 on advertising 5-Alarm Chili last quarter (included in selling and administrative costs) and increased sales by 50,000 jars. The accountant investigated the cost structure and discovered the following about the 5-Alarm Chili.

•  
  • Cost of goods sold consists of unit-related, batch-related, product-sustaining, and allocated facility-sustaining costs. Unit-related costs are $0.75 per jar, batch-related costs are $800 per batch (batch size is 2,500 jars), and ongoing research and development costs are $10,000 per quarter. Facility-sustaining costs of $400,000 per quarter are allocated to the product lines based on the number of units produced.
  • Selling and administrative costs consist of unit-related, product-sustaining, and facility-sustaining costs. Unit-related costs are $0.15 per jar. Advertising is the only product-sustaining cost and facility-sustaining costs of $80,000 per quarter are allocated to the product lines based on the number of units sold.

Required:

•  
  • A.        Should the 5-Alarm Chili line be discontinued? Why?
  • B.        What other factors should Quinton consider before making this decision?