Computer Village sells computer equipment and home office furniture. Currently the furniture product line takes up approximately 50 percent of the company’s retail floor space. The president of Computer Village is trying to decide whether the company should continue offering furniture or concentrate on computer equipment. Below is a product line income statement for the company. If furniture is dropped salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.

Required
Determine whether Computer Village should discontinue the furniture line and the financial benefit (cost) of droppingit.

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Computer Equipment $1,200,000 Less cost of goods sold700,000 500,000 Office Total Home Furniture $800,000 500,000 300,000 Sales $2,000,000 1,200,000 800,000 Contribution margin Less direct fixed costs Salaries Other 175,000 60,000 175,000 60,000 350,000 120,000 Less allocated fixed costs: Rent Insurance Cleaning President's salary Other 14,118 3,529 4,117 76,470 7,058 5 159708 9,882 2,471 2,883 53,530 4942 (S 8,708) 24,000 6,000 7,000 130,000 12,000 S 151,000 Net income