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Clinton Company sells two items, product A and product B.  The company is considering dropping product B.  It is expected that sales of product A will increase by 405 as a result.  Dropping product B will allow the company to cancel its monthly equipment rental costing $100 per month.  The other existing equipment will be used for additional production of product A.  One employee earning $200 per month can be terminated if product B production is dropped.  Clinton's other fixed costs are allocated and will continue regardless of the decision made.  A condensed, budgeted monthly income statement with both products follows:

      Product A   Product B   Total
   Sales   $10,000   $ 8,000   $18,000
   Direct materials   2,500   2,000   4,500
   Direct labor   2,000    1,200   3,200
   Equipment rental   300   2,600   2,900
   Other allocated overhead      1,000      2,100     3,100
   Operating income   $4,200   $   100    $ 4,300

Required:
Prepare an incremental analysis to determine the financial effect of dropping product B.

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Thank you for the help. I took this course as an elective, glad it's over in three weeks. Great textbook though!

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