Question

O’Neil Enterprises produces a line of canned soups for sale at supermarkets across the country. Demand has been “soft” recently and the company is operating at 75 percent of capacity. The company is considering dropping one of the soups, beef barley, in hopes of improving profitability. If beef barley is dropped, the revenue associated with it will be lost and the related variable costs saved. The CFO estimates that the fixed costs will also be reduced by 25 percent.

The following product line statements are available.

Product	Broth				Beef Barley				Minestrone
Sales	$	34,200			$	44,300			$	52,700
Variable costs		22,500				39,600				41,100
Contribution margin	$	11,700			$	4,700			$	11,600
Fixed costs allocated to each product line		5,700				7,000				8,100
Operating profit (loss)	$	6,000			$	2,300			$	3,500

Required:

a-1. Complete the following differential cost schedule.

b. When the product manager for the minestrone soup hears that managers are considering dropping the beef barley line, she points out that many O’Neil customers buy more than one soup flavor and if beef barley is not available from O’Neil, some of them might stop buying the other soups as well. She estimates that 10 percent of the current sales of both broth and minestrone will be lost if beef barley is dropped.

b-1. Complete the following differential cost schedule.

When the product manager for the minestrone soup hears that managers are considering dropping the beef barley line, she points out that many O’Neil customers buy more than one soup flavor and if beef barley is not available from O’Neil, some of them might stop buying the other soups as well. She estimates that 10 percent of the current sales of both broth and minestrone will be lost if beef barley is dropped.

B1. Complete the following differential cost schedule.

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	Status Quo Alternative: Drop Beef Barley Difference (all lower under the alternative) Revenue Less: Variable costs Contribution margin Less: Fixed costs Operating profit (loss)

	Status Quo	Alternative: Drop Beef Barley	Difference
Revenue
Less: Variable costs
Contribution margin
Less: Fixed costs
Operating profit (loss)

Answer 1