Computer Boutique

Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company’s retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.
 

  Computer Home Office  
  Equipment Furniture       Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold   700,000   500,000 1,200,000
Contribution margin   500,000   300,000    800,000
Less direct fixed costs:      
          Salaries 175,000 175,000 350,000
          Other 60,000 60,000 120,000
Less allocated fixed costs:      
          Rent 14,118 9,882 24,000
          Insurance 3,529 2,471 6,000
          Cleaning 4,117 2,883 7,000
          President’s salary 76,470 53,350 130,000
          Other      7,058      4,942    12,000
Total costs  340,292  380,708  649,000
Net Income $159,708 ($ 8,708) $151,000
         

Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line