Type your answer in the box. Jay\'s Furniture makes several types of furniture i

Question

Type your answer in the box. Jay's Furniture makes several types of furniture including couches and loveseats. Last year total contribution margin was $900,000 for couches and $350,000 for loveseats. Loveseats had a segment margin of $50,000 and common fixed costs of $100,000 so the company is considering stopping loveseat production. If that happens, sales of couches is expected to increase by 10%, The net impact of stopping production of loveseats will (increase/decrease) profits by $ Read about thia Do you know the answer? I know it Think so Unsure No idea

Explanation / Answer

----Net impact of stopping production of Loveseats will INCREASE profits by $ 40,000

A = $900,000 x 10% Increase in Contribution of Couches $                             90,000.00 B = [given] Loss of Segment margin of Loveseats $                             50,000.00 C = A - B Net Increase in Profits $                             40,000.00

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