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Question - Foress Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company's retail floor space. The president of Foress Village is trying to decide whether the company should continue offering office furniture or concentrate on home furniture. Below is a product line income statement for the company. If office furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of home furniture can increase by 15 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.
Home Furniture
Office Furniture
Total
Sales
$1,440,000
$1,108,800
$2,548,800
Less cost of goods sold:
936,000
806,400
1,742,400
Contribution margin
504,000
302,400
Less direct fixed costs:
Salaries
176,400
352,800
Other
55,440
110,880
Less allocated fixed costs:
Rent
12,740
9,838
22,578
Insurance
3,540
2,510
6,050
Cleaning
3,830
3,204
7,034
President's salary
73,580
58,662
132,242
6,810
5,562
12,372
Net income/(loss)
$171,660
$(9,216)
$162,444
Required - Determine whether Foress Village should discontinue the office furniture line and the financial benefit (cost) of dropping it. (Round answer to 0 decimal places, e.g. 5,275.)
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