Mercer has three product lines in its retail stores: flipflops, sandals, and slippers. Results of the fourth quarter are presented below: Units sold Revenue Variable departmental costs Direct fixed costs Allocated fixed costs Flipflops 1,000 $20,000 17,000 1,000 7,000 Sandals 2,000 $40,000 22,000 3,000 7,000 Slippers 2,000 $25,000 12,000 2,000 7,000 Total 5,000 $85,000 51,000 6,000 21,000
Mercer has three product lines in its retail stores: flipflops, sandals, and slippers. Results of the fourth quarter are presented below: Units sold Revenue Variable departmental costs Direct fixed costs Allocated fixed costs Flipflops 1,000 $20,000 17,000 1,000 7,000 Sandals 2,000 $40,000 22,000 3,000 7,000 Slippers 2,000 $25,000 12,000 2,000 7,000 Total 5,000 $85,000 51,000 6,000 21,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A28

Transcribed Image Text:Mercer has three product lines in its retail stores: flipflops, sandals, and slippers. Results of the fourth quarter are presented below:
Units sold
Revenue
Variable departmental costs
Direct fixed costs
Allocated fixed costs
Net income (loss)
Flipflops
1,000
$20,000
17,000
1,000
7,000
$(5,000)
Sandals
2,000
$40,000
22,000
3,000
7,000
$8,000
Slippers
If Mercer discontinues the Flipflops product line profit will
2,000
12,000
$25,000 $85,000
2,000
7,000
$4,000
Total
5,000
Y
51,000
6,000
21,000
The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines.
What will happen to profits if Mercer discontinues the Flipflops product line?
$7,000
by $
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