Question
Tri TownVillage sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president
Tri TownVillage sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president ofTri TownVillage 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 by15percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.
Home Furniture Office Furniture Total
Sales $1,440,000 $1,108,800 $2,548,800
Less cost of goods sold $936,000 $806,400 $1,742,400
______________ _____________ ______________
Contribution margin $504,000 $302,400 $806,400
Less direct fixed costs:
Salaries $176,400 $176,400 $352,800
Other $55,440 $55,440 $110,880
Less allocated fixed costs:
Rent $13,820 $11,1122 $4,932
Insurance $3,690 $2,824 $6,514
Cleaning $4,280 $3,057 $7,337
President's salary $76,080 $61,786 $137,866
Other $6,960 $5,372 $12,332
________ __________ _________
Net income / (loss) $167,330 $(13,591) $153,739
Determine whetherTri TownVillage should discontinue the office furniture line and the financial benefit (cost) of dropping it.(Round answer to 0 decimal places, e.g. 5,275.)
Net income without Office Furniture is $________enter net income without office furniture in dollars. The company
should drop OR should not drop the Home Office Furniture.
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