Jordan Walken owns and operates an electronics store in Seattle, Washington. His accountant has prepared a product line income statement that is reproduced below. (Jordan€™s two lines are MP3 players and accessories.) In preparing the income statement, the accountant allocated all common costs, including rent, Jordan€™s salary and the salary of his two assistants, utilities, and other common costs based on relative sales. His reason: Each product line needs to cover its share of common costs.0
In light of this report, Jordan is considering eliminating accessories and concentrating solely
on the sale of MP3 players (although he does not expect an increase in MP3 player sales).

Required
Analyze the effect on profit of dropping accessories. Then write a paragraph explaining the role of common costs in your analysis and how allocation of common costs can lead to the cost allocation deathspiral.

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MP3 Players Accessories Total $870,000 605,000 265.000 43,000 198,000 6,000 5.000 252,000 $130000 95,000 -35000 7,000 32,000 1,000 Sales Cost of merchandise Gross margin Rent Salaries Utilities Other Total $1,000,000 700,000 300.000 50,000 230,000 7,000 6,000 293,000 S 7,000 41 Income before taxes S 6000)