Computer Boutique sells computer equipment and home office furniture - 73505

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2. (TCO 7) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.
 

 

Computer

Home Office

 

 

Equipment

Furniture

      Total

Sales

$1,200,000

$800,000

$2,000,000

Less cost of goods sold

  700,000

  500,000

1,200,000

Contribution margin

  500,000

  300,000

   800,000

Less direct fixed costs:

 

 

 

          Salaries

175,000

175,000

350,000

          Other

60,000

60,000

120,000

Less allocated fixed costs:

 

 

 

          Rent

14,118

9,882

24,000

          Insurance

3,529

2,471

6,000

          Cleaning

4,117

2,883

7,000

          President's salary

76,470

53,350

130,000

          Other

     7,058

     4,942

   12,000

Total costs

 340,292

 380,708

 649,000

Net Income

$159,708

($ 8,708)

$151,000

 

 

 

 

 


 
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.

Solution Description

Computer Bou

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Computer Boutique sells computer equipment and home office furniture.doc
Computer Boutiq...