1.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?
2.Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina%u2019s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.
|
Hospital Supplies
|
Retail Stores
|
Mail Order
|
|
Sales
|
$120,000
|
|
$440,000
|
|
$360,000
|
|
|
Variable costs
|
64,000
|
|
200,000
|
|
140,000
|
|
|
Contribution Margin
|
56,000
|
|
240,000
|
|
220,000
|
|
|
Direct Fixed Costs
|
50,000
|
|
80,000
|
|
90,000
|
|
|
Allocated common fixed costs
|
20,000
|
|
70,000
|
|
60,000
|
|
|
Net Income
|
($ 14,000)
|
|
$ 90,000
|
|
$ 70,000
|
|
If hospital supplies are dropped, what would happen to profit?
3.Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina%u2019s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.
|
Hospital Supplies
|
Retail Stores
|
Mail Order
|
|
Sales
|
$120,000
|
|
$440,000
|
|
$360,000
|
|
|
Variable costs
|
64,000
|
|
200,000
|
|
140,000
|
|
|
Contribution Margin
|
56,000
|
|
240,000
|
|
220,000
|
|
|
Direct Fixed Costs
|
50,000
|
|
80,000
|
|
90,000
|
|
|
Allocated common fixed costs
|
20,000
|
|
70,000
|
|
60,000
|
|
|
Net Income
|
($ 14,000)
|
|
$ 90,000
|
|
$ 70,000
|
|
Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact on overall profitability be if the %u201CHospital Supplies%u201D segment is eliminated?