ShoppingKart, Inc. is a supermarket having three operating departments. An incom
ID: 2379580 • Letter: S
Question
ShoppingKart, Inc. is a supermarket having three operating departments. An income statement for the most recent month of operations is listed below.
GENERAL
MEAT
PRODUCE
TOTAL
Sales
$50,000
$40,000
$10,000
$100,000
Variable Costs
30,000
16,000
5,000
51,000
Contribution Margin
20,000
24,000
5,000
49,000
Fixed Costs:
Direct, avoidable
5,000
4,000
3,500
12,500
Common, allocated based
on sales dollars
10,000
8,000
2,000
20,000
Profit (Loss)
$ 5,000
$12,000
$( 500)
$ 16,500
If Shopping Kart, Inc. were to drop the Produce line and make no other changes, income for the month would be:
A-$12,000 B-$15,000 C-$16,000 D-$17,000
The space currently being used by Produce could be converted into a Deli Department. If this were done, expected Deli operations are as follows: sales of $20,000; variable costs of $8,000; avoidable fixed costs of $3,000. Assuming no changes for General and Meat departments, income for the month would be:
A-$23,500 B-$24,000 C-$24,500 D-some other
amount
GENERAL
MEAT
PRODUCE
TOTAL
Sales
$50,000
$40,000
$10,000
$100,000
Variable Costs
30,000
16,000
5,000
51,000
Contribution Margin
20,000
24,000
5,000
49,000
Fixed Costs:
Direct, avoidable
5,000
4,000
3,500
12,500
Common, allocated based
on sales dollars
10,000
8,000
2,000
20,000
Profit (Loss)
$ 5,000
$12,000
$( 500)
$ 16,500
Explanation / Answer
I agree with the frist part, for the second part I would have to disagree. The Common, Allocated based on sales dollars line item is exactly what it says, based on sales. If you look at all the other departments, that line item equates to 20% of sales. Therefore in the case of the deli that cost would be (.2*20000) which equals $4000. Your profit for the Deli would then be $5000 resulting in $22,000 in profit overall. Therefoe the answer is D
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