Pantheon Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are
Pantheon Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement follows:
Since the profit for accelerator devices is relatively low, the company is considering dropping this product line.
Required a. Determine the impact on profit of dropping accelerator products. b. Discuss the potential qualitative effects of discontinuing the sale of acceleratorproducts.
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Pantheon Gaming Income Statement For the Year Ended December 31,2011 Audio Video Accelerators Total Sales Less cost of goods sold Gross margin Less other variable costs Contribution margirn Less direct salaries Less common fixed costs: $1,045,000 $2,255,000 $2,200,000 $5,500,000 3,685,000 1,815,000 142,000 1,673,000 395,000 1,240,000 470,000 1,015,000 69,000 946,000 175,000 575,000 53,000 417,000 155,000 1,870,000 330,000 20,000 310,000 65,000 Rent Utilities Depreciation Other administrative costs 63,000 23,000 31,000 0970 66800417000 160,540 552,060 31,400 744,000 11,970 4,370 5,890 79,230 25,830 9,430 12,710 25,200 9,200 12,400 Net income
a Effect of dropping accelerators Lost contribution margin 310 000 Savings of direct sa…View the full answer
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