Computer village sells computer equipment and home office

Reference no: EM13589496

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.

Reference no: EM13589496

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