help with example 1 460864

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

380,708

649,000

Net Income

$159,708

($ 8,708)

$151,000

Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.