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Exercise 7-13 Marx sells computer equipment and home office furniture. Currently the furniture product line takes up approximately 50 percent of the company's retail floor
Exercise 7-13 Marx 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 Marx 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 12 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales. Sales Computer Home Office Total Equipment Furniture $1,425,000 $1,097,250 $2,522,250 926,250 798,000 1,724,250 498,750 299,250 798,000 179,550 59,850 179,550 59,850 359.100 119,700 Less cost of goods sold Contribution margin Less direct fixed costs: Salaries Other Less allocated fixed costs: Rent Insurance Cleaning President's salary Other Net income / (loss) 10.889 2,739 3,139 12.790 3,440 4,110 67,110 6,400 $165,500 23,679 6,179 7,249 125,525 11,758 $144,810 58,415 5,358 $(20,690) Determine whether Marx should discontinue the furniture line and the financial benefit (cost) of dropping it. Net income without Home Office Furniture is? Enter your answers as amounts only with neither commas nor decimals
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