Reference no: EM13584810

1.Superior 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 for the year ended December 31, 2011 follows:

	Audio		Video		Accelerators		Total
Sales	$1,045,000		$2,255,000		$2,200,000		$5,500,000
Less COGS	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 var 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 admin costs	79,230		170,970		166,800		417,000
Net income	$160,540		$552,060		$31,400		$744,000

Since the profit for accelerators is relatively low, the company is considering dropping this product line. What is the incremental effect of dropping accelerators?

2.Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina%u2019s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.

	Hospital Supplies		Retail Stores		Mail Order
Sales	$120,000		$440,000		$360,000
Variable costs	64,000		200,000		140,000
Contribution Margin	56,000		240,000		220,000
Direct Fixed Costs	50,000		80,000		90,000
Allocated common fixed costs	20,000		70,000		60,000
Net Income	($ 14,000)		$ 90,000		$ 70,000

If hospital supplies are dropped, what would happen to profit?

3.Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina%u2019s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.

	Hospital Supplies		Retail Stores		Mail Order
Sales	$120,000		$440,000		$360,000
Variable costs	64,000		200,000		140,000
Contribution Margin	56,000		240,000		220,000
Direct Fixed Costs	50,000		80,000		90,000
Allocated common fixed costs	20,000		70,000		60,000
Net Income	($ 14,000)		$ 90,000		$ 70,000

Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact on overall profitability be if the %u201CHospital Supplies%u201D segment is eliminated?