A doughnut shop makes three basic types of doughnuts: cream filled, chocolate filled, and jam filled. The doughnut shop manager is analyzing the product mix and has collected the following information:

Chocolate Filled	Cream Filled	Jam Filled
Sales price per dozen	$ 4.00	$ 3.00	$ 2.50
Direct cost per dozen	(2.10)	(0.90)	(2.00)
Fixed overhead per dozen	(0.40)	(0.50)	(1.00)
Profit per dozen	$ 1.50	$ 1.60	(0.50)

The fixed costs are unavoidable and are allocated to each doughnut type based on the quantity produced. The doughnut shop has excess capacity.

Required:

1. Which product should the doughnut shop promote if the promotion will result in an increase in sales of 50 dozen of the promoted product?

2. Should the jam-filled doughnuts be dropped from the product line? Why or why not?

3. How does the decision to drop the jam-filled doughnuts change if the shop is currently producing at capacity?

Exercise 12-20 DROPPING A PRODUCT LINE Chocolate filled Cream filled Jam filled Sales price per dozen Direct cost per dozen CM per dozen The shop should promote doughnuts if the promotion would increase sales by 50 dozen. 1. Should jam filled doughnuts be dropped from the product line? Why or why not? 2. Would your decision in 2. change if the shop was operating at capacity