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Marshall Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales.
Marshall Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement follows:
Since the profit for accelerator devices is relatively low, the company is considering dropping this product line. Determine the annual impact on profit of dropping accelerator products.
Marshall Gaming Income Statement For the Year Ended December 31, 2017 Audio Video Accelerators Total Sales $1,200,000 $2,450,000 $2,400,000 $6,050,000 Less cost of goods sold 730,000 1,435,000 2,070,000 4,235,000 Gross margin 470,000 1,015,000 330,000 1,815,000 Less other variable costs 48,640 66,070 20,770 135,480 Contribution margin 421,360 948,930 309,230 1,679,520 Less direct salaries 166,010 185,950 65,650 417,610 Less common fixed costs: Rent 11,970 25,830 25,200 63,000 Utilities 4,370 9,430 9,200 23,000 Depreciation 5,890 12,710 12,400 31,000 Other administrative costs 79,230 170,970 166,800 417,000 Net income $153,890 $544,040 $29,980 $727,910Step by Step Solution
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