Question
Cinrich Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales.
Cinrich Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement follows:
CinrichGaming Income Statement For the Year Ended December 31, 2020 | ||||||||
---|---|---|---|---|---|---|---|---|
Audio | Video | Accelerators | Total | |||||
Sales | $1,200,000 | $2,450,000 | $2,400,000 | $6,050,000 | ||||
Less cost of goods sold | 730,000 | 1,435,000 | 2,070,000 | 4,235,000 | ||||
Gross margin | 470,000 | 1,015,000 | 330,000 | 1,815,000 | ||||
Less other variable costs | 49,750 | 71,760 | 21,670 | 143,180 | ||||
Contribution margin | 420,250 | 943,240 | 308,330 | 1,671,820 | ||||
Less direct salaries | 148,790 | 189,630 | 60,950 | 399,370 | ||||
Less common fixed costs: | ||||||||
Rent | 11,970 | 25,830 | 25,200 | 63,000 | ||||
Utilities | 4,370 | 9,430 | 9,200 | 23,000 | ||||
Depreciation | 5,890 | 12,710 | 12,400 | 31,000 | ||||
Other administrative costs | 79,230 | 170,970 | 166,800 | 417,000 | ||||
Net income | $170,000 | $534,670 | $33,780 | $738,450 |
Since the profit for accelerator devices is relatively low, the company is considering dropping this product line. Determine the annual impact on profit of dropping accelerator products.
The company will be select an impact blank (better/worse) off by blank annual impact on profit in dollars if it drops accelerators. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started