MA76 Problem: Relevant Costing – Drop a Product Line - Licnep Ltd.

MA76 Problem: Relevant Costing – Drop a Product Line - Licnep Ltd.

Licnep Ltd. has three major product lines, soda, juice, and ice cream. Licnep is consideringdiscontinuing producing ice cream because the divisional income statement indicates it is beingsold at a loss. The most recent annual income statement is outlined below:Soda(000’s)Juice(000’s)Ice Cream(000’s)Sales $48,330 $44,980$26,230Variable costs 16,500 19,60012,700Fixed costs 21,800 24,40018,300Operating income $10,030 $ 980($4,770) The fixed costs include fixed costs directly attributable to each product line as well as allocatedcommon costs. The portion of directly attributable fixed costs included in total fixed costs is 40%for soda, 75% for juice and 55% for ice cream.Required:1. Should Licnep Ltd. discontinue making ice cream