Furniture Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company’s retail floor space. The president of Furniture Village is trying to decide whether the company should continue offering office furniture or concentrate on home furniture. Below is a product line income statement for the company. If office furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of home furniture can increase by 15 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales. 

Required 

Determine whether Furniture Village should discontinue the office furniture line and the financial benefit (cost) of dropping it.

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Home Furniture Office Furniture Total Sales $1,400,000 $1,100,000 $2,500,000 Less cost of goods sold 900,000 800,000 1,700,000 Contribution margin 500,000 300,000 800,000 Less direct fixed costs: Salaries 175,000 175,000 350,000 Other 60,000 60,000 120,000 Less allocated fixed costs: Rent 13,440 10,560 2,640 24,000 Insurance 3,360 6,000 Cleaning President's salary 3,920 3,080 7,000 72,800 6,720 57,200 5,280 130,000 12,000 Other Net income $ 164,760 ($ 13,760) $ 151,000