Stott Knife Company produces three models of kitchen knives: Dicer, Slicer, and CutsAll. Sales and costing information for the three models are as follows:

In the past, manufacturing overhead has been allocated based on number of units produced. Manufacturing overhead for the period is $810,000, and the predetermined overhead rate is $15 per unit produced.
Based on this information, management has determined that the Dicer is barely breaking even because the market for knives is quite competitive, the price for each model is set by the market'not by management. Thus, increasing the price charged for products is not an option. As a result, management is considering discontinuing the Dicer. Before making a final decision, management has come to you for advice. You collect the following information regarding manufacturing overhead:

Determine the gross profit for each model under the current manufacturing overhead allocation scheme. Determine the manufacturing overhead cost for each model using the information relating to activities. Determine the gross profit for each model using the ABC allocated manufacturing overhead. What recommendation would you make to management regarding its decision to discontinue theDicer?

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Slicer Dicer CutsAll Selling price per unit. Units produced. Direct materials cost. Direct labor cost. S35 26,000 S65 16,000 $215,000 $45,000 S80 12,000 $125,000 S35,000 $410,000 S110,000