Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Textbook Question
Chapter 10, Problem 8PA
Extreme Sports sells logo sports merchandise. The company is contemplating whether or not to continue its custom embroidery service. All of the company’s direct fixed costs can be avoided if a segment is dropped. This information is available for the segments.
A. What will be the impact on net income if the embroidery segment is dropped?
B. Assume that if the embroidery segment is dropped, apparel sales will increase 10%. What is the impact on the contribution margin and net income solely for the apparel?
C. Identify one cost that is not relevant in this analysis.
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Students have asked these similar questions
Lisa Inc. manufactures golf clubs in three models. For the year, the Mart line has a net loss of $10,000 from sales of $200,000, variable costs of $180,000, and fixed costs of $30,000. If the Mart line is eliminated, $20,000 of fixed costs will remain. Which of the following is correct?
The Mart line should not be eliminated because the amount of contribution margin given up is not completely offset by the savings in fixed costs
The Mart line should be eliminated because the amount of contribution margin given up is completely offset by the savings in fixed costs
The Mart line should be eliminated because the amount of contribution margin given up is partially offset by the savings in fixed costs
The Mart line should not be eliminated because the amount of contribution margin given up is more than the savings in fixed costs
Mr.Godfroy,the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $45,000 variable costs, which vary with sales volume, and $20,000 (fixed) costs.
1.
Compute the contribution margin of
Godfroy
Men's Clothing.
2.
Compute the contribution margin percentage.
3.
Mr.
Godfroy
estimates that he can increase units sold and, hence, revenues by
20%
by incurring additional advertising costs of
$12,000.
Calculate the impact of the additional advertising costs on operating income.
4.
What other actions can Mr.
Godfroy
take to improve operating income?
Meg's Manufacturing Company can make 211 units of a component part for variable costs of $159,896 and fixed costs of $32,104. The compnay decides the buy the part externally instead for $153,734 and $4,789 of the fixed costs will be avoided. How much will net income increase or decrease? If net income increases, make your answer positive; If net income decreases, put a (-) negative sign in front of the answer. Round your answer to the nearest whole dollar and do not type the dollar sign.
Chapter 10 Solutions
Principles of Accounting Volume 2
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