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Paver Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The
Paver Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president of Paver Village 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 by 15 percent without affecting direct fixed "costs. Allocated foxed costs are assigned based on relative sales Home Furniture Office Furniture Total Sales $1,420,000 $1,093,400 $2,513,400 Less cost of goods sold 923,000 795.200 1.718.200 Contribution margin 497,000 298.200 795.200 Less direct fixed costs Salaries 173.950 173,950 347,900 Other 59,640 59,640 119.280 Less allocated fixed costs Rent 13,330 9.986 23,316 Insurance 3,660 2,669 6,329 Cleaning 3,650 3,290 6,940 President's salary 69,390 62.769 132.159 Other 6,300 5.543 11,843 Net income/(loss) $167.080 5(19,647) $147,433 Determine whether Paver Village should discontinue the office furniture line and the financial benefit (cost) of dropping it. (Round) answer to O decimal places, eg. 5,275)
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