Computer Boutique sells computer equipment and home office furniture. Currently,
ID: 2376330 • Letter: C
Question
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
$308,528
$649,000
Net Income
$159,708
($8,528)
$151,180
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
$308,528
$649,000
Net Income
$159,708
($8,528)
$151,180
Explanation / Answer
We make an analysis with the line and without the line
With Furniture Without Line Furniture Sales 2,000,000 1,356,000 (1,200,000 X 13% Less cost of goods sold 1,200,000 791,000 (700,000 X 13%) Contribution margin 800,000 565,000 Less direct fixed costs: Salaries 350,000 175,000 Other 120,000 60,000 Less allocated fixed costs: Rent 24,000 24,000 Insurance 6,000 6,000 Cleaning 7,000 7,000 President%u2019s salary 130,000 130,000 Other 12,000 12,000 Total costs 649,000 414,000 Net Income 151,000 151,000Related Questions
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