Question
(9 points - 3 each line) Brown Bear Merchandising Inc. has three product lines in its retail stores: books, music, and videos. Results of the
(9 points - 3 each line) Brown Bear Merchandising Inc. has three product lines in its retail stores: books, music, and videos. Results of the fourth quarter are presented below:
|
| Books |
| Music |
| Videos |
| Total |
| Revenue | $25,000 | $40,000 | $28,000 | $93,000 |
| Variable departmental costs | 17,000 | 21,000 | 12,000 | 50,000 |
| Direct fixed costs | 4,000 | 6,000 | 3,000 | 13,000 |
| Allocated fixed costs | 5,000 | 5,000 | 5,000 | 15,000 |
| Net income (loss) | $ (1,000) | $ 8,000 | $ 8,000 | $ 15,000 |
The allocated fixed costs are unavoidable. Demand for individual products is not affected by changes in other product lines. Instructions What will happen to profits if Brown Bear discontinues the Books product line? Only analyze Books. Ignore Music and Videos.
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