Accounting Principles II Short-Run Decsion Making: Relevant Costing Keep or Drop
ID: 2560271 • Letter: A
Question
Accounting Principles II Short-Run Decsion Making: Relevant Costing Keep or Drop AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $19 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system, Variable-costing income statements for the three products follow: $ 44.500 $ 32,500 $8,300 Sales Less Variable expenses 19,700 2 200 3,300 Contribution margin$24,800 $7.300 $5,000 Less Fixed costs 9 500 17.600 2.600 Operating income (loss) $15,300 S(10.300) $2,400 The owner of the store is concerned about the profit performance of System B and is considering dropping it. If the product is dropped, sales of System A will increase by 32%, and sales of headsets will drop by 26%. Round all answers to the nearest whole number. RequiredExplanation / Answer
Answer 1. AudioMart Segmented Income Statement System A System B Headset Total Sales 44,500 32,500 8,300 85,300 Less: Variable Costs 19,700 25,200 3,300 48,200 Contribution Margin 24,800 7,300 5,000 37,100 Less: Direct Fixed Costs 318 10,894 888 12,100 Segment Margin 24,482 (3,594) 4,112 25,000 Less: Common Fixed Costs 17,600 Operating Income 7,400 Total Fixed Costs 9,500 17,600 2,600 29,700 Less: Common Fixed Costs 9,182 6,706 1,712 17,600 Direct Fixed Costs 318 10,894 888 12,100
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