Use the following information to answer questions 1 and 2. ShoppingKart, Inc. is

Question

Use the following information to answer questions 1 and 2.

ShoppingKart, Inc. is a supermarket having three operating departments. An income statement for the most recent month of operations appears below:

General Meat Produce Total

Sales $50,000 $40,000 $10,000 $100,000
Variable Costs 30,000 16,000 5,000 51,000
Contribution Margin 20,000 24,000 5,000 49,000
Fixed Costs
Direct, avoidable (5,000) (4,000) (3,500) (12,500)
Common, Allocated based
on sales dollars (10,000) (8,000) (2,000) (20,000)
Profit (Loss) $ 5,000 $12,000 ($ 500) $16,500


1. If ShoppingKart, Inc. were to drop the produce line and make no other changes to its operations, income for the month would be:

a. $12,000 b. $15,000 c. $16,000 d. $17,000


2. The space currently being used by the produce department could be converted to a deli department. If there were done, sales of the deli are expected to be $20,000 with variable costs of $8,000 and avoidable direct fixed costs of $3,000. Assuming no effects on the general grocery and meat departments, income for the month would be:

a. $23,500 b. $24,000 c. $24,500 d. some other amount

Explanation / Answer

1) Total Profit = 5,000 + 12,000 = 17,000
d. $17,000...........(answer)

2)

b) 24,000.....................(answer)

Particular General Meat Deli Total Sales 50000 40000 20000 110000 Variable Costs 30000 16000 8000 54000 Contribution Margin 20000 24000 12000 56000 Fixed Costs Direct, avoidable -5000 -4000 -3000 -12000 Common, Allocated based on sales dollars -10000 -8000 -2000 -20000 Profit (Loss) 5000 12000 7000 24000

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