EXERCISE 7-13. Dropping a Product Line [LO 1,2] Computer Village sells computer equipment and home office furniture.Currently the furniture product line takes up approximately 50 percent of the companys retail floor space.The president of Computer Village is trying to decide whether the company should continue offering furniture or concentrate on computer equipment. Below is a product line income statement for the company. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales. Computer Home Office Equipment Furniture Total Sales $1,200,000 $800,000 $2,000,000 Less cost of goods sold 700,000 500,000 1,200,000 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 14,118 9,882 24,000 Insurance 3,529 2,471 6,000 Cleaning 4,117 2,883 7,000 Presidents salary 76,470 53,530 130,000 Other 7,058 4,942 12,000 Net income $ 159,708 ($ 8,708) $ 151,000 Required Determine whether Computer Village should discontinue the furniture line and the financial benefit (cost) of dropping it. Copyright