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 company's 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 Ofce Equipment Furniture Total Sales $1,400,000 $1,100,000 $2,500,000 Less cost of goods sold l000,000 800,000 1,700,000 Contribution margin 500,000 300.000 800.000 Less direct xed costs: Salaries 175,000 175,000 350,000 Other 60,000 60,000 120,000 Less allocated xed costs: Rent 13,440 10,560 24,000 Insurance 3,360 2,640 6,000 Cleaning 3,920 3,080 ?,000 President's salary 70,800 57,200 130,000 Other 6,720 5,280 12,000 Net income :1 164,760 {5 13,760) 5 151 ,000 Required Determine whether Computer Village should discontinue the furniture line and the financial benefit (cost) of dropping it