Travesty Stores are considering deleting its porcelain product to losses being experienced. Travesty’s summary profit report shows the following:

a. What allocation basis is the company using to allocate the corporate fixed costs?

b. What is the effect on Travesty’s operating profit if it drops the porcelain product line?

c. If the allocated corporate fixed costs could be decreased by 25% overall, would this change the decision in (a)? Show calculations.

Transcribed Image Text:

Cutlery Glassware Porcelain Total Sales $30,000 $35,000 $10,000 $75,000 Variable costs 15,000 20,000 7,000 42,000 Avoidable product-related fixed costs 5,000 7,500 2,500 15,000 Allocated corporate fixed costs 5,000 5,833 1,667 12,500 Operating profit $ 5,000 $ (1,667) $(1,167) $ 5,500