Exercise 3: What is the expected increase or decrease in Operating Income (for Step 2 of the exercise) if the Medium grade product is dropped? See circle in Step 2 on the printed exercise. If the answer is a decrease, please indicate so by clearly placing a minus in front of the number. Also, should the Medium grade product be dropped? A complete answer will include both a dollar amount and a Yes or No.

EXERCISE 3: Aspen Roofing Materials produces three different products. Low Grade Medium Grade $622,000 Premium Grade $925,000 Sales Revenue $868,000 Variable Manuf. Costs (410,000) (38,000) (481,000) (47,000) (510,000) (41,000) Variable Marketing & Admin Contribution Margin Fixed Manufacturing Costs Operating Income $420,000 (121,000) $ 94,000 (103,000) $374,000 (138,000) $299,000 $ (9,000) $236,000 Since the Medium Grade product appears to be unprofitable, should Aspen drop this product? Assume that the fixed costs will be incurred even if Aspen drops the Medium Grade product. To solve this problem: 1) Define the decision: Answer- Keep or Drop the Medium Grade product. 2) Go line by line and focus ONLY on relevant data. 5 Page Relevant Drop Relevant: Y or N Sales Revenue Variable Manuf. Costs Variable Marketing & Admin Fixed Manuf. Costs Increase or Decrease in Operating Income if Medium is Dropped Should the Medium Grade product be dropped. Yes or No