Question

Richetti Unlimited produces and sells three lines of carpet: economy, standard, and deluxe. Jeff Choi, the chief financial officer of the company, has prepared the following report on the profitability in the past year. In the report, fixed costs are allocated based on yards of carpet.

	Economy	Standard	Deluxe	Total
Yards of carpet	29,600	44,400	74,000	148,000
Sales	$321,000	$796,000	$1,546,600	$2,573,600
Less variable costs (dye, yarn, labor, etc.)	172,100	423,800	919,700	1,515,600
Less fixed costs (depreciation, supervisory salaries, etc.)	163,760	245,640	409,400	818,800
Profit (loss)	$(14,860)	$36,560	$217,500	$239,200

Upon seeing the report, Matt Williams, the president of Richetti Unlimited, suggested that the company should consider dropping the economy grade and concentrate on the two other lines. Jeff replied, however, that would lead to the cost allocation death spiral.

Revise the report assuming the company drops the economy grade. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Yards of Carpet	Standard	Deluxe	Total
Sales	$	$	$
Less variable costs
Less fixed costs
Profit (loss)	$	$	$

If either the standard or the deluxe grades is reporting a loss in part a, revise the report assuming that it is also dropped. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Yards of Carpet
Sales	$
Less variable costs
Less Fixed costs
Profit (loss)	$

Answer 1

If the company drops the economy trade,company have profits only

	standard	delux	total
yards of carpet	44400	74000	118400
sales	$796000	$1546600	2342600
variable cost	423800	919700	3686100
les:fixed cost	245640	409400	655040
profit(loss)	126560	217500	344060

If the standard grade having loss, then the company continue only with delux trade

	Delux
yards of carpet	74000
sales	$1546600
variable cost	919700
less: fixed cost	409400
profit(loss)	$217500