2C2D REYNOLDS INC. MANUFACTURES SEVERAL DIFFERENT PRODUCTS, INCLUDING...

253.

CSO: 2C2f

LOS: 2C2d

Reynolds Inc. manufactures several different products, including a premium lawn

fertilizer and weed killer that is popular in hot, dry climates. Reynolds is currently

operating at less than full capacity because of market saturation for lawn fertilizer. Sales

and cost data for a 40-pound bag of Reynolds lawn fertilizer is as follows.

Selling price

$18.50

Production cost

Materials and labor

$12.25

Variable overhead

3.75

Allocated fixed overhead

4.00

20.00

Income (loss) per bag

$(1.50)

On the basis of this information, which one of the following alternatives should be

recommended to Reynolds management?

a.

Select a different cost driver to allocate its overhead.

b.

Drop this product from its product line.

c.

Continue to produce and market this product.

d.

Increase output and spread fixed overhead over a larger volume base.