Question

Brief Exercise 177 Parino Company has three product lines in its retail stores: books, videos, and music. The allocated fixed costs are based on units sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. Results of the fourth quarter are presented below: Books 1,000 Music 2,000 Videos 2,000 Total 5,000 Units sold Revenue Variable departmental costs Direct fixed costs Allocated fixed costs Net income (loss) $24,000 15,000 3,000 4,400 $ 1,600 $48,000 22,000 6,000 8,800 $11,200 $30,000 23,000 4,000 8,800 $ (5,800) $102,000 60,000 13,000 22,000 $ 7,000 Prepare an incremental analysis of the effect of dropping the Video product line. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) $ Incremental savings on direct materials Incremental revenue Incremental decrease in profit to drop video line Incremental savings on direct fixed costs Incremental savings on variable costs Incremental savings on direct labor

Answer 1

А B 1 Incremental analysis of effect of dropping Video product 2 Incremental revenue $ -30,000 3 Incremental savings on variable costs $ 23,000 4 Incremental savings on direct fixed costs $ 4,000 5 Incremental decrease in profit to drop video line $ -3,000 6 7 Note: 8 Allocated fixed costs are sunk costs, hence they are irrlevant.

в А 1 Incremental analysis of effect of dropping Video product 2 Incremental revenue -30000 3 Incremental savings on variable costs 23000 4 Incremental savings on direct fixed costs 4000 5 Incremental decrease in profit to drop video line =+B2+B3+B4 6 7 Note: 8 Allocated fixed costs are sunk costs, hence they are irrlevant.