EXERCISE 12–20 Dropping a Product Line [LO2] A doughnut shop makes three basic types of… 1 answer below »

 

 

EXERCISE 12–20 Dropping a Product Line [LO2]

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 follow- ing information:

 

 

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?