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. The information is available for the segments. Custom Embroidery Logo Apparel Sales $59,000 $251,000 Variable costs 29,000 111,000 Contribution margin $30,000 $140,000 Direct fixed costs 22,000 41,000 Allocated common fixed costs 12,000 50,000 Net income $(4,000) $49,000 A. What will be the impact on net income if the embroidery segment is dropped? Net income $fill in the blank 1 Decrease 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? Contribution margin $fill in the blank 3 Increase Net income $fill in the blank 5 Increase C. Identify one cost that is not relevant in this analysis. Common fixed costs
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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. The information is available for the segments.
| Custom Embroidery |
Logo Apparel |
||
| Sales | $59,000 | $251,000 | |
| Variable costs | 29,000 | 111,000 | |
| Contribution margin | $30,000 | $140,000 | |
| Direct fixed costs | 22,000 | 41,000 | |
| Allocated common fixed costs | 12,000 | 50,000 | |
| Net income | $(4,000) | $49,000 |
A. What will be the impact on net income if the embroidery segment is dropped?
Net income $fill in the blank 1 Decrease
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?
| Contribution margin | $fill in the blank 3 | Increase |
| Net income | $fill in the blank 5 | Increase |
C. Identify one cost that is not relevant in this analysis.
Common fixed costs
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