Reference no: EM13335959

PROBLEM 7-9. Dropping a Product Line [LO 1, 2, 4] Pantheon Gaming, a computer enhancement company, has three product lines: audio enhancers,video enhancers,and connection-speed accelerators.Common costs are allocated based on relative sales.A product line income statement follows:

Pantheon Gaming

Income Statement

For the Year Ended December 31, 2011

Audio Video Accelerators Total

Sales $1,045,000 $2,255,000 $2,200,000 $5,500,000

Less cost of goods sold 575,000 1,240,000 1,870,000 3,685,000

Gross margin 470,000 1,015,000 330,000 1,815,000

Less other variable costs 53,000 69,000 20,000 142,000

Contribution margin 417,000 946,000 310,000 1,673,000

Less direct salaries 155,000 175,000 65,000 395,000

Less common fixed costs:

Rent 11,970 25,830 25,200 63,000

Utilities 4,370 9,430 9,200 23,000

Depreciation 5,890 12,710 12,400 31,000

Other administrative costs 79,230 170,970 166,800 417,000

Net income $160,540 $ 552,060 $ 31,400 $ 744,000

Since the profit for accelerator devices is relatively low, the company is considering dropping this product line.

Required

a. Determine the impact on profit of dropping accelerator products.

b. Discuss the potential qualitative effects of discontinuing the sale of accelerator products.