Delicious Desserts is thinking about ending the production of two types of ice cream. Financial data related to the products is provided below:

Rum Raisin Blue Moon
Sales $680,000 $573,000
Variable expenses 246,000 219.000
Fixed expenses 468,000 364,000

If Delicious stops making Rum Raisin ice cream, it estimates it can eliminate 75% of the fixed costs associated with that product. Similarly, if it stops making Blue Moon, it estimates it can eliminate 70% of the fixed costs associated with that product.
Given these figures, which of the following statements is true?

A) Delicious would be worse off if it discontinues Rum Raisin and would be better off if it discontinues Blue Moon.
B) Delicious would be better off if it discontinues Rum Raisin and would be worse off if it discontinues Blue Moon.
C) Delicious would be better off if it discontinues both products.
D) Delicious would be worse off if it discontinues either product.

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.

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!

i think the answer would be b hope this

the answer is b for dog