Answer:
The correct choice here is A)
Delicious would be worse off if it discontinues Rum Raisin and would be better off if it discontinues Blue Moon.
Step-by-step explanation:
Lets look at the figures:
Step I
Calculate the Total Costs for each product.
Total Cost (TC) = Fixed Cost + Variable Cost
TC for Rum Raisin =
$246,000+ $468,000
= $714,000
TC for Blue Moon =
$219,000 + $ 364,000
= $ 583 000
Step II
The business estimates that it can eliminate it's Fixed cost to a certain degree. Lets look at each before we make a decision.
New TC for each business is given as below:
New TC for Rum Raisin if 75% of Fixed Cost is eliminated =
$246,000+ ($468,000 x 25%)
= $246,000 + $117,000
New TC for Rum Raisin Ice Cream = $363,000
New TC for Blue Moon if 70% of it's Fixed Cost is removed =
$246,000+ ($468,000 x 30%)
= $246,000 + $140,400
New TC for Blue Moon Ice Cream = $386,400
The company Delicious is better off eliminating the product with the highest TC all other factors remaining accounted for and taken into consideration.
The product which must go is Blue Moon Ice Cream.
Cheers!