Reference no: EM13603978

Elliot's Escargots sells commercial and home snail extraction tools and serving pieces. Currently, the snail extraction line of products takes up approximately 50 percent of the company's retail floor space. The CEO of Elliot's wants to decide if the company should continue offering snail extraction tools or focus only on serving pieces. If the snail extraction tools are dropped, salaries and other direct fixed costs can be avoided and serving piece sales would increase by 13 percent. Allocated fixed costs are assigned based on relative sales.

Snail Extraction Serving

Tools Pieces 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

Executive salary 76,470 53,530 130,000

Other 7,058 4,942 12,000

Total costs 340,292 308,708 649,000

Net income $159,708 ($ 8,708) $151,000