Question
Jordan Sports Company sells logo sports merchandise and does custom screen printing. They are trying to decide whether or not to continue screen printing. The
Jordan Sports Company sells logo sports merchandise and does custom screen printing. They are trying to decide whether or not to continue screen printing. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the screen printing were dropped.
Screen Printing | Apparel Sales | |
Sales | $120,000 | $420,000 |
Variable Costs | 72,000 | 220,000 |
Contribution Margin | 48,000 | 200,000 |
Direct Fixed Costs | 32,000 | 70,000 |
Allocated Common Fixed Costs | 20,000 | 70,000 |
Net Income | ($4,000) | $60,000 |
Assume that more space will be allocated to apparel sales if screen printing is dropped. This will allow apparel sales to increase by 25%. What is the impact on gross profits of a 25% increase in apparel sales?
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