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.
Trending nowThis is a popular solution!
Chapter 10 Solutions
Principles of Accounting Volume 2
Additional Business Textbook Solutions
Intermediate Accounting (2nd Edition)
Managerial Accounting (5th Edition)
Intermediate Accounting
Financial Accounting
Financial Accounting, Student Value Edition (4th Edition)
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
- A small company manufactures a certain item and sells it online. The company has a business model where the cost, C in dollars, to make x items is given by the equation C = 20/3 x + 50. The revenue R , in dollars , made by selling x items is given by the equation R = 10x. How many items must the company sell in order for the cost to equal their revenue?arrow_forwardBarbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin es Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…arrow_forwardBarbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 134,000 52,000 $ 82,000 77,000 23,000 62,000…arrow_forward
- Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales. Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income T-1 $ 200,000 1. 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 70,000…arrow_forwardBarbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs. Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 200,000 70,000 20,000 $ 110,000 58,700 14,300 $ 73,000 T-2 $ 260,000 130,000 50,000 $ 80,000…arrow_forwardMeg'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.arrow_forward
- what is the Revenue, cost and profit functions for the problem below? Orange Company buys Product A for P15 per units and sells them for P25 per unit. There areno other variable costs. Fixed cost is P6,000. Use the breakeven formula to determine thefollowing:a. Revenue, cost and profit functions.arrow_forwardHead Bucket, Inc. has two product lines—batting helmets and football helmets. The income statement data for the most recent year is as follows in the chart. Assuming the football helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the football helmet line is used to double the production of batting helmets, operating income will be ________.arrow_forwardCompany manufactures and sells bikes. Each bike costs 18 R.O to make. The company’s fixed costs are 500 R.O. In addition, the company owners know that the price of each bike comes from the price function ?=60−1/2?a. Find the Break-even point of the company b. Find the number of bikes at maximum profit of the company c. Find the maximum revenue the company earnedarrow_forward
- SnowDelight operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. (Click the icon to view the information.) Read the requirements. Requirement 1. If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? Complete the following table to calculate SnowDelight's projected income Revenue at market price Less: Total costs Operating income Requirements 1 If SnowDelight cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level? 2 Assume SnowDelight has found ways to cut its fixed costs to $36.000,000 What is its new target variable cost per skier/snowboarder?arrow_forwardHoward Cooper, the president of Thornton Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 3. Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost Expected fixed costs Facility maintenance Selling, general, and administrative Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 42,000 hours of services in Year 3. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Thornton charges customers $79 per hour, the firm can achieve 48,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the…arrow_forwardTop managers of Vermont Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision in the chart below: Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain. 2. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring. 3. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However,…arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College