THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 7 AND 8. The management accountan
ID: 2487622 • Letter: T
Question
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 7 AND 8.
The management accountant for Martha’s Book Store has prepared the following income statement for the most current year.
Cookbook Travel Book Classics Total
Sales $60,000 $100,000 $40,000 $200,000
Cost of goods sold 36,000 65,000 20,000 121,000
Contribution margin 24,000 35,000 20,000 79,000
Order and delivery processing 18,000 21,000 8,000 47,000
Rent (per sq. foot used) 2,000 1,000 3,000 6,000
Allocated corporate costs 7,000 7,000 7,000 21,000
Corporate profit $ (3,000) $ 6,000 $ 2,000 $ 5,000
7. If the cookbook product line had been discontinued prior to this year, the company would have reported
a. greater corporate profits.
b. the same amount of corporate profits.
c. less corporate profits.
d. resulting profits cannot be determined.
ANSWERS: $60,000 - $36,000 - $18,000 - $2,000 = $4,000
I know the answer is C, but how do we know to eliminated the allocated corporate cost to get the answer? Please explain clearly, thanks!!!
Explanation / Answer
$60,000 – $36,000 – $18,000 – $2,000 = $4,000
The cookbook product line contributed $4,000 toward corporate profits. Withoutthe cookbooks, corporate profits would be $4,000 less than currently reported.
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