Introduction to Accounting An Integrated Approach Eighth Edition Chapter 4 P4.9

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. A. Should the 5-Alarm Chili line be discontinued? Why? B. What other factors should Quinton consider before making this decision