Page Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company’s retail floor space. The president of Page Village is trying to decide whether the company should continue offering office furniture or concentrate on home furniture. Below is a product line income statement for the company. If office furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of home furniture can increase by 16 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales. Home Furniture Office Furniture Total Sales $1,435,000 $1,104,950 $2,539,950 Less cost of goods sold 932,750 803,600 1,736,350 Contribution margin 502,250 301,350 803,600 Less direct fixed costs: Salaries 180,810 180,810 361,620 Other 60,270 60,270 120,540 Less allocated fixed costs: Rent 13,050 11,035 24,085 Insurance 3,410 2,681 6,091 Cleaning 4,030 2,792 6,822 President’s salary 78,970 59,120 138,090 Other 6,500 4,999 11,499 Net income / (loss) $155,210 $(20,357) $134,853 Determine whether Page Village should discontinue the office furniture line and the financial benefit (cost) of dropping it. (Round answer to 0 decimal places, e.g. 5,275.) Net income without Office Furniture is ($enter net income) without office furniture in dollars . The company select an option ( should or should not) the Home Office Furniture product line.

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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Page Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company’s retail floor space. The president of Page Village is trying to decide whether the company should continue offering office furniture or concentrate on home furniture. Below is a product line income statement for the company. If office furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of home furniture can increase by 16 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.

			Home Furniture		Office Furniture		Total
Sales		$1,435,000		$1,104,950		$2,539,950
Less cost of goods sold		932,750		803,600		1,736,350
Contribution margin		502,250		301,350		803,600
Less direct fixed costs:
	Salaries		180,810		180,810		361,620
	Other		60,270		60,270		120,540
Less allocated fixed costs:
	Rent		13,050		11,035		24,085
	Insurance		3,410		2,681		6,091
	Cleaning		4,030		2,792		6,822
	President’s salary		78,970		59,120		138,090
	Other		6,500		4,999		11,499
Net income / (loss)		$155,210		$(20,357)		$134,853

Determine whether Page Village should discontinue the office furniture line and the financial benefit (cost) of dropping it. (Round answer to 0 decimal places, e.g. 5,275.)

Net income without Office Furniture is ($enter net income) without office furniture in dollars . The company select an option ( should or should not) the Home Office Furniture product line.

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