Brief Exercise 5:

Parino Company has three product lines in its retail stores: books, videos, and music. The allocated fixed costs are based on units sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. Results of the fourth quarter are presented below:

BooksMusicVideosTotal

Units sold1,0002,0002,0005,000

Revenue$24,000$48,000$30,000$102,000

Variable departmental costs15,00022,00023,00060,000

Direct fixed costs3,0006,0004,00013,000

Allocated fixed costs4,4008,8008,80022,000

Net income (loss)$1,600$11,200$ (5,800)$7,000

Instructions

Make a incremental analysis of the effect of dropping the Video product line.