31) Managerial Financial Accounting Assignments AP7-9 (a) Solution

31) Managerial Financial Accounting Assignments AP7-9 (a) Solution

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AP7-9 (a)
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Incorrect. Dropping a Product Line [LO 1, 2, 4] 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: Pantheon Gaming Income Statement For the Year Ended December 31, 2011 Audio Video Accelerators Total Sales $1,045,000 $2,255,000 $2,200,000 $5,500,000 Less cost of goods sold 575,000 1,240,000 1,870,000 3,685,000 Gross margin 470,000 1,015,000 330,000 1,815,000 Less other variable costs
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57,100 73,200 21,400 151,700 Contribution margin 412,900 941,800 308,600 1,663,300 Less direct salaries 159,400 178,700 66,800 404,900 Less common fixed costs: Rent 11,970
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Unformatted text preview: 25,830 25,200 63,000 Utilities 4,370 9,430 9,200 23,000 Depreciation 5,890 12,710 12,400 31,000 Other administrative costs 79,230 170,970 166,800 417,000 Net income $152,040 $544,160 $28,200 $724,400 Since the profit for accelerator devices is relatively low, the company is considering dropping this product line. Determine the impact on profit of dropping accelerator products. $[no answer] Worse off Click here if you would like to Show Work for this question AP7-9 (a) Effect of dropping accelerators: Lost contribution margin $(308,600) Savings of direct salaries 66,800 Net effect $(241,800) The company will be worse off by $241,800 if it drops accelerators....
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