Computer Village sells computer equipment and home office furniture. Currently the furniture product line takes up approximately 50 percent of the company's retail floor space. The president of Computer Village is trying to decide whether the company should continue offering furniture or concentrate on computer equipment. Below is a product line income statement for the company. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 12.00 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.
|
|
|
Computer
Equipment |
|
Home Office
Furniture |
|
Total |
| Sales |
|
$1,400,000 |
|
$1,078,000 |
|
$2,478,000 |
| Less cost of goods sold |
|
910,000 |
|
784,000 |
|
1,694,000 |
| Contribution margin |
|
490,000 |
|
294,000 |
|
784,000 |
| Less direct fixed costs: |
|
|
|
|
|
|
|
Salaries |
|
176,400 |
|
176,400 |
|
352,800 |
|
Other |
|
58,800 |
|
58,800 |
|
117,600 |
| Less allocated fixed costs: |
|
|
|
|
|
|
|
Rent |
|
13,540 |
|
10,460 |
|
24,000 |
|
Insurance |
|
3,270 |
|
2,670 |
|
5,940 |
|
Cleaning |
|
3,920 |
|
3,050 |
|
6,970 |
|
President's salary |
|
72,170 |
|
56,720 |
|
128,890 |
|
Other |
|
66,670 |
|
5,230 |
|
71,900 |
| Net income / (loss) |
|
$95,230 |
|
$(19,330) |
|
$75,900 |
Determine whether Computer Village should discontinue the furniture line and the financial benefit (cost) of dropping it.
Net income without Home Office Furniture is $____________
. The company should be indifferent between dropping or not dropping the Home Office Furniture product line.