Question
Shoes Inc. has three product lines in its retail stores: Boots, Runners, and Luxury. The allocated fixed costs are based on revenue and are unavoidable.
Shoes Inc. has three product lines in its retail stores: Boots, Runners, and Luxury. The allocated fixed costs are based on revenue and are unavoidable. Results of the fourth quarter are presented below:
Boots Runners Luxury Total Units sold 750 1,000 1,200 2,950 Revenue $22,500 $15,000 $9,600 $47,100 Variable departmental costs 12,000 8,000 5,000 25,000 Direct fixed costs 4,000 3,000 4,500 11,500 Allocated fixed costs 4,777 3,185 2,038 10,000 Net income (loss) $ 1,723 $815 $(1,938) $600 Demand of individual products is not affected by changes in other product lines. Required In a table format an incremental analysis of the effect of dropping the Luxury product line.
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