EA8. **LO 10.4** 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.| | Costumes | 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 |**Question:** If costumes are dropped, what change will occur to profit?

It is necessary to deduct the variable cost per unit from the sales revenue per unit in order to calculate the contribution margin per unit. Net Income is computed by subtracting all the fixed expenses from the contribution margin.Computation of Change occur to profit is as follows: Current profit = $15,000 + $35,000 - $4,000=$46,000 If the costume section is dropped, there won't be any sales, but there will still be allocated common fixed expenses and direct fixed costs. Profit if costume segment is eliminated = $15,000 + $35,000 - $50,000 - $30,000=($30,000) $46,000 profit will become ($30,000) loss hence profit will reduce by $76,000 Answer: Profit will reduce by $76,000

Business

Accounting

EA8. LO 10.4 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. Sales Variable costs Contribution margin Direct fixed costs Allocated common fixed costs Net income Costumes $160,000 84,000 76,000 50,000 30,000 $ (4,000) Party Supplies $110,000 50,000 60,000 20,000 25,000 $ 15,000 If costumes are dropped, what change will occur to profit? Floral Decorations $210,000 120,000 90,000 25,000 30,000 $ 35,000

EA8. LO 10.4 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. Sales Variable costs Contribution margin Direct fixed costs Allocated common fixed costs Net income Costumes $160,000 84,000 76,000 50,000 30,000 $ (4,000) Party Supplies $110,000 50,000 60,000 20,000 25,000 $ 15,000 If costumes are dropped, what change will occur to profit? Floral Decorations $210,000 120,000 90,000 25,000 30,000 $ 35,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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