Computer Boutique_Dropping of Home office furniture

$14.00

Description

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

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