Jordan Walken owns and operates an electronics store in Seattle, Washington. Her accountant has prepared a product line income statement that is reproduced below. (Jordan's two lines are music devices and accessories.) In preparing the income statement, the accountant allocated all common costs, including rent, Jordan's salary and the salary of her two assistants, utilities, and other common costs based on relative sales (rounded to thousands).
Her reason:"Each product line needs to cover its share of common costs." In light of this report, Jordan is considering eliminating accessories and concentrating solely on the sale of music devices (although, she does not expect an increase in music device sales).

Required
Analyze the effect on profit of dropping accessories. Then write a paragraph explaining the role of common costs in your analysis and how allocation of common costs can lead to the cost allocation death spiral?

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Music Devices $970,000 705,000 265,000 43,000 198,000 Accessories Total Sales Cost of merchandise Gross marqin Rent Salaries Utilities Other Total $150,000 120,000 30,000 7,000 32,000 1,000 1,120,000 825.000 295.000 50,000 230,000 7,000 6,000 252,000 13,000 41,000 293,000 $ 2,000 Income before taxes