Zoota Ltd makes four products: Alta,Bepha,Delma and Gamta.The selling price and per unit costs are show below.*Alta and Delma share the same factory;therefore,monthly rent is allocated equally between the two products.Other allocated monthly fixed costs include administrative costs,which are allocated based on a $2/unit charge.Zoota Ltd decides to drop Delma because it is unprofitable.Christina Bobo,the management accountant of Zoota Ltd,suggests that by dropping Delma the company can save $1 x 5000 = $5000 a month.Your assessment of Christina's suggestion is:
A) Christina is correct in her quantitative assessment;although she needs to also consider the qualitative factors.
B) Christina is incorrect because by dropping Delma,the company actually loses $3 per unit.
C) Christina is incorrect,because by dropping Delma,the company actually loses $1 per unit.
D) Christina is incorrect,because Delma is currently at break-even point.
Correct Answer:
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