Question

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?


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  • CreatedMarch 25, 2015
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