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I-23.03 Problem

I-23.03 Problem - television showroom space It is believed...

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I-23.03 Samstrun Electronics Store has three major departments: computers, televisions, and appliances. The appliance department has been a consistent money loser, as typified by the following recent monthly operating report: Total Computers TVs Appliances Sales 2,550,000 $ 750,000 $ 1,200,000 $ 600,000 $ Variable expenses 2,100,000 600,000 1,000,000 500,000 Contribution margin 450,000 $ 150,000 $ 200,000 $ 100,000 $ Fixed expenses 305,000 100,000 80,000 125,000 Income (loss) 145,000 $ 50,000 $ 120,000 $ (25,000) $ Management is considering a strategy to exit the appliance business. If this strategy is followed, the floor space currently dedicated to appliances will be used to expand the
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Unformatted text preview: television showroom space. It is believed that television sales will increase by 40%. Fixed expenses that can be avoided by abandoning appliance sales include the salary of a service tech and the elimination of a delivery van. The two components total $10,000 per month. The remaining fixed costs relate to facilities expenses and employees that will be diverted to television sales activities. Evaluate the impact on total profitability of exiting appliance sales. How can overall profits be negatively impacted by abandoning an "unprofitable" product line?...
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