Question

Chai Yetu Limited Company has three products of Luxury Blend, Supreme Blend and Nguvu Blend. The extract of the income statement for the three products indicate that Supreme blend is not generating enough income and the management are considering dropping the product line. Before doing so the analysis was to be done to justify the decision whether to keep or drop. At a glance supreme blend shows that it generate loss of TZS 1,500 how ever let us make differential analysis before final decision. Product Line Luxury Blend Supreme Blend Nguvu Blend Total TZS’000 TZS’000 TZS’000 TZS ,000 Sales 233,500 157,000 299,000 689,500 Variable Cost 120,500 84,500 160,500 365,500 Contribution Margin 113,000 72,500 138,500 324,000 Direct Fixed cost 45,500 43,000 56,000 144,500 Allocated Fixed cost 46,500 31,000 60,000 137,500 Net income 21,000 -1,500 22,500 42,000 Use the incremental approach to determine if product should be dropped.

Answer 1