Question
I am at a crossroad with this problem because at first I thought there wouldn't be a difference in income or we don't have enough
I am at a crossroad with this problem because at first I thought there wouldn't be a difference in income or we don't have enough information I guess but when i redid it and got a contribution margin of $565,000 and then subtracted the allocated fixed cost to get a total of $486,240 but I'm not sure which is correct and why
Dropping a Product Line [LO 1] 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.
1st column is computer equipment, 2nd column is home office furniture, 3rd column is total -- sorry they are so close together
Sales $1,400,000 $1,100,000 $2,500,000
Less cost of goods sold900,000800,000 1,700,000
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 13,440 10,560 24,000
Insurance 3,360 2,640 6,000
Cleaning 3,920 3,080 7,000
President's salary 72,800 57,200 130,000
Other 6,720 5,280 12,000
Net income $164,760 ($13,760) $151,000
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