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# Segment analysis; full costing

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1) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.

Computer Home Office
Equipment Furniture Total
Sales \$1,200,000 \$800,000 \$2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income \$159,708 (\$ 8,708) \$151,000

Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line

2) Beach Rentals has estimated that fixed costs per month are \$79,200 and variable cost per dollar of sales is \$0.52.

(a) What is the break-even point per month in sales?
(b) What level of sales is needed for a monthly profit of \$24,000?
(c) For the month of July, the company anticipates sales of \$240,000. What is the expected level of profit?

3) Peak Manufacturing produces snow blowers. The selling price per snow blower is \$100. Costs involved in production are:

Direct Material per unit \$20
Direct Labor per unit 12
Variable manufacturing overhead per unit 10
Fixed manufacturing overhead per year \$148,500

In addition, the company has fixed selling and administrative costs of \$150,000 per year. During the year, Peak produces 45,000 snow blowers and sells 30,000 snow blowers. How much is net income using full costing?
\$1,641,000
\$1,590,000
\$1,441,500
\$1,491,000

#### Solution Preview

1) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.

Computer Home Office
Equipment Furniture Total
Sales \$1,200,000 \$800,000 \$2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 ...

#### Solution Summary

The expert examines segment analysis for full costing.

\$2.49