Product-line Decisions, gross approach (LO2, Appendix B). Pete\'s Pets is an ind

Question

Product-line Decisions, gross approach (LO2, Appendix B). Pete's Pets is an independent pet store located in Hoboken, New Jersey. Pete collects and reports operating data by “product line,” with all revenues and costs being placed into one of three summary categories: (1) dogs, (2) cats, (3) birds & fish. For the most recent year of operations, Pete reported the following results:

Dogs

Cats

Birds & Fish

Total

Required: a. Using the gross approach, evaluate whether Pete should discontinue the birds and fish product line. b. For decision-making purposes, do you believe Pete needs more detailed information than is currently provided in his financial statements? Why?

Dogs

Cats

Birds & Fish

Total

Revenue $218,000 $148,500 $92,500 $453,000 Variable costs 87,200 42,750 46,250 176,200 Contribution margin $130,800 $99,750 $46,250 $276,800 Traceable fixed costs 31,500 22,600 27,500 81,600 Common fixed costs1 35,000 35,000 35,000 105,000 Profit $64,300 $42,150 ($16,250) $90,200

Explanation / Answer

Dogs Cats Birds & Fish Total Dogs Cats Revenue $218,000 $148,500 $92,500 $453,000 $244,160 $166,320 Variable costs 87,200 87,200 46,250 176,200 87,200 $87,200 Contribution margin $130,800 $130,800 $46,250 $276,800 $130,800 $130,800 Traceable fixed costs 31,500 22,600 27,500 81,600 5921.053 $3,139 Common fixed costs1 35,000 35,000 35,000 105,000 5639.098 $4,861 Profit $64,300 $42,150 ($16,250) $90,200 $78,900 $13,520

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