+ Computerworld is a small retail chain that sells personal computers, peripherals such as printers, software...

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+ Computerworld is a small retail chain that sells personal computers, peripherals such as printers, software packages, and office supplies. Management of Computerworld is concerned about the loss in the office supplies line as reported on the functional form, absorption costing-based income statement used for financial reporting. All Figures in '000 Software PCs Peripherals Office packages supplies Totals Sales $800 $200 $400 $300 $1,700 Variable costs ($500) ($100) ($250) ($270) ($1,120) Contribution margin $300 $100 $150 $30 $580 Direct fixed costs ($150) ($40) ($70) ($16) ($276) Segment margin $150 $60 $80 $14 $304 Common Allocated Costs ($1) ($1) ($1) ($15) ($18) Net Income $149 $59 $79 ($1) $286 Additional data regarding direct cost for the "office Supplies" line is as follows: Cost Item Depreciation of display racks and cases Salaries of managers Salaries of discharged employees Total direct fixed costs Avoidable Unavoidable $7 4 $5 $5 $11 The common allocated costs to Office Supplies is unavoidable. Required: 1. Should the Office supplies line be dropped (Show your work)? {Ans: No, Net Income will decrease} 2. What will be the net change in Income if Office Supplies line is dropped? {Ans: ($25,000), that is, Net Income will decrease by $25,000} 3. What is the Net Income if the Office Supplies line is dropped? {Ans: $261,000} 4. How much cost needs to be removed (direct and common) that will make dropping office supplies line a viable option? + Computerworld is a small retail chain that sells personal computers, peripherals such as printers, software packages, and office supplies. Management of Computerworld is concerned about the loss in the office supplies line as reported on the functional form, absorption costing-based income statement used for financial reporting. All Figures in '000 Software PCs Peripherals Office packages supplies Totals Sales $800 $200 $400 $300 $1,700 Variable costs ($500) ($100) ($250) ($270) ($1,120) Contribution margin $300 $100 $150 $30 $580 Direct fixed costs ($150) ($40) ($70) ($16) ($276) Segment margin $150 $60 $80 $14 $304 Common Allocated Costs ($1) ($1) ($1) ($15) ($18) Net Income $149 $59 $79 ($1) $286 Additional data regarding direct cost for the "office Supplies" line is as follows: Cost Item Depreciation of display racks and cases Salaries of managers Salaries of discharged employees Total direct fixed costs Avoidable Unavoidable $7 4 $5 $5 $11 The common allocated costs to Office Supplies is unavoidable. Required: 1. Should the Office supplies line be dropped (Show your work)? {Ans: No, Net Income will decrease} 2. What will be the net change in Income if Office Supplies line is dropped? {Ans: ($25,000), that is, Net Income will decrease by $25,000} 3. What is the Net Income if the Office Supplies line is dropped? {Ans: $261,000} 4. How much cost needs to be removed (direct and common) that will make dropping office supplies line a viable option?

Answer rating: 100% (QA)

Answer To determine whether the Office Supplies line should be dropped and to calculate the net chan... View the full answer