Question

Problem 7-9

Pukalani Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement follows:

Pukalani Gaming Income Statement For the Year Ended December 31, 2017
		Audio		Video		Accelerators		Total
Sales		$1,200,000		$2,450,000		$2,400,000		$6,050,000
Less cost of goods sold		730,000		1,435,000		2,070,000		4,235,000
Gross margin		470,000		1,015,000		330,000		1,815,000
Less other variable costs		53,060		69,390		18,710		141,160
Contribution margin		416,940		945,610		311,290		1,673,840
Less direct salaries		156,220		164,500		68,240		388,960
Less common fixed costs:
Rent		11,970		25,830		25,200		63,000
Utilities		4,370		9,430		9,200		23,000
Depreciation		5,890		12,710		12,400		31,000
Other administrative costs		79,230		170,970		166,800		417,000
Net income		$159,260		$562,170		$29,450		$750,880

Since the profit for accelerator devices is relatively low, the company is considering dropping this product line.

Determine the annual impact on profit of dropping accelerator products.

The company will be betterworse off by $ if it drops accelerators.

Answer 1