FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
7. Party Supply is trying to decide whether or not to continue its costume segment. The information shown is available for Party Supply's business segments. Assume that neither the Direct fixed costs nor the Allocated common fixed costs may be eliminated, but will be allocated to the two remaining segments. Costumers Party Supplies Floral Decorations Sales $160,000 $110,000 $210,000 Variable costs 84,000 50,000 120,000 Contribution margin 76,000 60,000 90,000 Direct fixed costs 50,000 20,000 25,000 Allocated common fixed costs. 30,000 25,000 30,000 Net income $ (4,000) $15,000 $35,000 If costumes are dropped, what change will occur to profit? PLEASE NOTE: All dollar amounts are rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345). 1. What is Party Supply's Net Income for all three segments? 2. What is Party Supply's Net Income or Net Loss, if they drop the Costumes segment? 3. If Party Supply eliminates the Costumes segment, what will the effect on profit be? • Incremental dollar amount = . • Increase or Decrease? . Please note: Your answer is either "Increase" or "Decrease" - capital first letters and no quotes.
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Transcribed Image Text:7. Party Supply is trying to decide whether or not to continue its costume segment. The information shown is available for Party Supply's business segments. Assume that neither the Direct fixed costs nor the Allocated common fixed costs may be eliminated, but will be allocated to the two remaining segments. Costumers Party Supplies Floral Decorations Sales $160,000 $110,000 $210,000 Variable costs 84,000 50,000 120,000 Contribution margin 76,000 60,000 90,000 Direct fixed costs 50,000 20,000 25,000 Allocated common fixed costs. 30,000 25,000 30,000 Net income $ (4,000) $15,000 $35,000 If costumes are dropped, what change will occur to profit? PLEASE NOTE: All dollar amounts are rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345). 1. What is Party Supply's Net Income for all three segments? 2. What is Party Supply's Net Income or Net Loss, if they drop the Costumes segment? 3. If Party Supply eliminates the Costumes segment, what will the effect on profit be? • Incremental dollar amount = . • Increase or Decrease? . Please note: Your answer is either "Increase" or "Decrease" - capital first letters and no quotes.
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Step 1: 1. Computation of party supply's net income for all three segments :
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Step 2: 2. Computation of net profit or net loss if they drop the costume segment :
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Step 3: 3. Computation of the effect on profit if Party supply eliminates the costume segment :
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