# Luke Corporation produces a variety of products, each within their own division. Last year, the managers...

###### Question:

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $6.00 per case, has not had the market success that managers expected and the company is considering dropping Bubbs. The product-line income statement for the past 12 months follows:$ 14,704,650 $Revenue Costs Manufacturing costs Allocated corporate costs (25%) Product-line margin Allowance for tax (@20%) Product-line profit (loss) 14.447.895 735 233$ 15,183,128 (478.478) 95,695 (382,783) $All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a parcentage of revenue. Data on corporate costs and revenues for the past two years follow: Most recent year Previous year Corporate Revenue$ 121,750,000 $77.700.000 Corporate Overhead Costs S6,087,500 5,109,590 Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given above, Mr. Andre provides you with the following data on product costs for Bubbs: Month Cases 222.000 224,700 222,400 243.000 250,450 252,000 227,750 254,700 246,300 260,150 257,700 266,700 Production Costs$1,164.340 1,185,840 1,194,493 1,210,035 1,212,339 1,233,185 1,208,211 1,251,286 1,249,738 1,261,837 1,266,272 1,296,963

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