Superior 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 for the year ended December 31, 2011 follows:
|
Audio |
|
Video |
|
Accelerators |
Total |
| Sales |
$1,045,000 |
|
$2,255,000 |
|
$2,200,000 |
|
$5,500,000 |
| Less COGS |
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 var costs |
53,000 |
|
69,000 |
|
20,000 |
|
142,000 |
| Contribution margin |
417,000 |
|
946,000 |
|
310,000 |
|
1,673,000 |
| Less direct salaries |
155,000 |
|
175,000 |
|
65,000 |
|
395,000 |
| Less common fixed costs: |
|
|
|
|
|
|
|
| Rent |
11,970 |
|
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 admin costs |
79,230 |
|
170,970 |
|
166,800 |
|
417,000 |
| Net income |
$160,540 |
|
$552,060 |
|
$31,400 |
|
$744,000 |
Since the profit for accelerators is relatively low, the company is considering dropping this product line. What is the incremental effect of dropping accelerators?