Question
ForessVillage sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president ofForessVillage
ForessVillage sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president ofForessVillage is trying to decide whether the company should continue offering office furniture or concentrate on home furniture. Below is a product line income statement for the company. If office furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of home furniture can increase by15percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.
Home Furniture OfficeFurniture Total
Sales $1,440,000 $1,108,800 $2,548,800
Less cost of goods sold: 936,000 806,400 1,742,400
Contribution margin 504,000 302,400 806,400
Less direct fixed costs:
Salaries 176,400 176,400 352,800
Other 55,440 55,440 110,880
Less allocated fixed costs:
Rent 12,740 9,838 22,578
Insurance 3,540 2,510 6,050
Cleaning 3,830 3,204 7,034
President's salary 73,580 58,662 132,242
Other 6,810 5,562 12,372
Net income / (loss) $171,660 $(9,216) $162,444
Determine whetherForessVillage should discontinue the office furniture line and the financial benefit (cost) of dropping it.(Round answer to 0 decimal places, e.g. 5,275.)
Net income without Office Furniture is $ .The companyshould drop or should not dropthe Home Office Furniture product line.
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