Use the following information for questions 16 and 17

. Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molinas business 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 a segment is dropped.

Hospital Supplies Retail Stores Mail Order

Sales $120,000 $440,000 $360,000

Variable Costs 64,000 200,000 140,000

Contribution Margin 56,000 240,000 220,000

Direct Fixed Costs 50,000 80,000 90,000

Allocated Common F Costs 20,000 70,000 60,000

Net Income ($14,000) $90,000 $70,000

16. If hospital supplies are dropped, overall net income would:

A. Decrease by $14,000

B. Increase by $14,000

C. Decrease by $6,000

D. Increase by $6,000

17. Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact of the increase in retail store sales have on overall profitability (compute the effect on retail sales only; ignore the effect from dropping hospital supplies from the previous question)?

A. Income would increase by $105,000

B. Income would increase by $22,500

C. Income would increase by $40,000

D. Income would increase by $60,000

Use the following information for questions 18 20.

Park Shoe Company is trying to decide whether or not to continue making bowling shoes. 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 bowling shoes were dropped.

Bowling Shoes Athletic Shoes Boots Sales

$120,000 $420,000 $360,000

Variable Costs 64,000 220,000 140,000

Contribution Margin 56,000 200,000 220,000

Direct Fixed Costs 40,000 70,000 90,000

Allocated Common F Costs 20,000 70,000 60,000

Net Income (4,000) 60,000 70,000

19. If bowling shoes are dropped, overall net income would:

A. Decrease by $4,000

B. Increase by $4,000

C. Decrease by $16,000

D. Increase by $16,000

20. Assume that if bowling shoes were dropped, sales of athletic shoes would drop by 10%. What impact would losing 10% of the sales of athletic shoes have on overall profitability? (Ignore the impact of dropping bowling shoes.)

A. Income would decrease by $42,000

B. Income would decrease by $13,000

C. Income would decrease by $20,000

D. Income would decrease by $6,000