CourseLover

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About CourseLover

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Algebra,Applied Sciences,Architecture and Design,Art & Design,Biology,Business & Finance,Calculus,Chemistry,Engineering,Health & Medical,HR Management,Law,Marketing,Math,Physics,Psychology,Programming,Science Hide all
Teaching Since: May 2017
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    Devry University
    Sep-2004 - Aug-2010

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  • Assistant Financial Analyst
    NatSteel Holdings Pte Ltd
    Aug-2007 - Jul-2017

Category > Accounting Posted 19 Dec 2017 My Price 10.00

Keep or Drop

 

Keep or Drop

AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow:

  System A System B Headset
Sales $55,000   $ 32,500   $8,000
Less: Variable expenses 22,000   25,500   3,200  
  Contribution margin $33,000   $ 7,000   $4,800  
Less: Fixed costs* 10,000   18,000   2,700  
  Operating income $23,000   $(11,000)   $2,100  

* This includes common fixed costs totaling $18,000, allocated to each product in proportion to its revenues.

The owner of the store is concerned about the profit performance of System B and is considering dropping it. If the product is dropped, sales of System A will increase by 44%, and sales of headsets will drop by 25%. (Note: Round all answers to the nearest whole number.)

Conceptual Connection: Prepare segmented income statements for System A and the headsets assuming that System B is dropped. Round your answers to the nearest dollar. Use a minus sign to enter negative values.



 AudioMart 
 Segmented Income Statement 
   
 System A 
 Headset 
 Total 
 Sales 
$  
$  
$  
 Variable expenses 
  
  
  
 Contribution margin 
$  
$  
$  
 Direct fixed costs 
  
  
  
 Segment margin 
$  
$  
$  
 Common fixed costs 
  
 Operating income 
$  

 

 

Should B be dropped?
SelectYesNoCorrect 1 of Item 3

 

 

 

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3.  Conceptual Connection: Suppose that a third system, System C, with a similar quality to System B, could be acquired. Assume that with C the sales of A would remain unchanged; however, C would produce only 80% of the revenues of B, and sales of the headsets would drop by 10%. The contribution margin ratio of C is 50%, and its direct fixed costs would be identical to those of B.



 AudioMart 
 Segmented Income Statement 
   
 System A 
 System C 
 Headset 
 Total 
 Sales 
$  
$  
$  
$  
 Variable expenses 
  
  
  
  
 Contribution margin 
$  
$  
$  
$  
 Direct fixed cost 
  
  
  
  
 Segment margin 
$  
$  
$  
$  
 Common fixed cost 
  
 Operating income 
$  

 

Conceptual Connection: Suppose that a third system, System C, with a similar quality to System B, could be acquired. Assume that with C the sales of A would remain unchanged; however, C would produce only 80% of the revenues of B, and sales of the headsets would drop by 10%. The contribution margin ratio of C is 50%, and its direct fixed costs would be identical to those of B.

Answers

CourseLover
(12)
Status NEW Posted 19 Dec 2017 03:12 PM My Price 10.00

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