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 $60,000 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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Units produced and sold Sales Cost of goods sold Gross margin Selling and administrative costs Profit 1-Alarm 5-Alarm 100,000 300,000 $229,000 $837,000 191,000 631,000 38,000 206,000 31,000 225,000 $7,000 $(19,000)