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Computer Village sells computer equipment and home office furniture. Currently the furniture product line takes up approximately 50 percent of the companys retail floor space. The president of Computer Village is trying to decide whether the company should continue offering furniture or concentrate on computer equipment. Below is a product line income statement for the company. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13.00 percent without affecting direct fixed costs. Allocated fixed costs are assigned based on relative sales.

Determine whether Computer Village should discontinue the furniture line and the financial benefit (cost) of dropping it.

Computer Home Office Equipment Furniture Total Sales Less cost of goods sold Contribution margin Less direct fixed costs: Salaries Other Less allocated fixed costs: Rent Insurance Cleaning President's salary Other Net income / (loss) $1,450,000 $1,116,500 $2,566,500 812,000 1,754,500 812,000 942,500 507,500 304,500 177,625 60,900 177,625 60,900 355,250 121,800 23,930 5,880 7,000 130,570 70,920 $109,515 $(12,865) $96,650 13,310 3,320 3,870 73,380 65,580 10,620 2,560 3,130 57,190 5,340