Wilken's Sandwich Shop maintains three separate menus for breakfast, lunch, and dinner. Gross margin computations for the three menu lines for 2012 are as follows:

Management at Wilken's has tentatively decided to stop serving breakfast in its restaurants because of poor financial performance. Before doing so, they have reexamined the costs of all three menu lines in order to verify that they are correct. Management determined that direct materials and direct labor costs are correct. However, using an activity-based costing approach, they discovered that $408,000 of overhead costs are related to facility support activities and the rest of the overhead ($648,000) is related to the kitchen setup activities required to prepare the menu line each day (a batch-level activity). They determined that a good cost allocation base for batch-level kitchen activities is number of setups per business day. Wilken's was open for business 360 days in 2012. The number of daily setup activities for each menu line is as follows:
Breakfast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dinner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Assuming the breakfast menu was dropped at the beginning of 2012, prepare gross margin calculations for the lunch and dinner menu lines assuming overhead is allocated based on the number of customers served. Be sure to show a "total" column.
2. Prepare gross margin calculations for Wilken's three menu lines assuming that overhead is assigned using activity-based costing. Facility support costs are not to be allocated to any of the menu lines, but are to be subtracted in the "total" column in the computation of total company operating profit.
3. Using the gross margin numbers prepared in parts (1) and (2), what would have happened to total company operating profit for the year 2012 if Wilken's would have dropped its breakfast menu at the beginning of the year?Explain.

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Breakfast Lunch Dinner Sales Direct materials. Direct labor. Overhead" Gross margin . $ 880,000 $1,015,000 $ 720,000 (217,500) (175,000) (325,000) (290,000) (155,000) (264,000) (264,000) S(233,000) $ 243,500 $ 126,000 "Overhead is allocated to the menu lines based on the number of customers served each day. In 2012, 4,000 break- fast customers, 2,000 lunch customers, and 2,000 dinner customers were served.