Allocate fixed costs are assigned based on relative sales

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Reference no: EM13166520

Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.


Computer

Home Office



Equipment

Furniture

Total

Sales

$1,200,000

$800,000

$2,000,000

Less cost of goods sold

$700,000

$500,000

$1,200,000

Contribution margin

$500,000

$300,000

$800,000

Less direct fixed costs




Salaries

$175,000

$175,000

$350,000

Other

$60,000

$60,000

$120,000

Less allocated fixed costs




Rent

$14,118

$9,882

$24,000

Insurance

$3,529

$2,471

$6,000

Cleaning

$4,117

$2,883

$7,000

President's salary

$76,470

$53,350

$130,000

Other

$7,058

$4,942

$12,000

Total costs

$340,292

$308,528

$649,000

Net Income

$159,708

($8,528)

$151,180

Reference no: EM13166520

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