Rally Shoe Company is trying to decide whether or not to continue making bowling
ID: 2376158 • Letter: R
Question
Rally Shoe Company is trying to decide whether or not to continue making bowling shoes. The following information is available for the segments.
Bowling Shoes
Athletic Shoes
Boots
Sales
$120,000
$420,000
$360,000
Variable Costs
64,000
220,000
140,000
Contribution Margin
56,000
200,000
220,000
Direct Fixed Costs
45,000
70,000
90,000
Allocated Common Fixed costs
20,000
70,000
60,000
Net Income
($9,000)
$60,000
$70,000
Assume that if bowling shoes were dropped, sales of athletic shoes would drop by 10%. What impact would losing 10% of the sales of athletic shoes have on overall profitability?
Answer
A.
Income would decrease by $31,000.
B.
Income would decrease by 30,000.
C.
Income would increase by $3,000.
D.
Income would decrease by $81,000.
Bowling Shoes
Athletic Shoes
Boots
Explanation / Answer
D.
Income would decrease by $81,000.
D.
Income would decrease by $81,000.
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