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Rally Shoe Company is trying to decide whether or not to continue making bowling shoes. The following information is available for the segments.

Bowling Shoes Athletic Shoes Boots
Sales $120,000 $420,000 $360,000
Variable Costs 64,000 220,000 140,000
Contribution Margin 56,000 200,000 220,000
Direct Fixed Costs 45,000 70,000 90,000
Allocated Common Fixed costs 20,000 70,000 60,000
Net Income ($9,000) $60,000 $70,000

Assume that if bowling shoes were dropped, sales of athletic shoes would drop by 10%. What impact would losing 10% of the sales of athletic shoes have on overall profitability?

A. Income would decrease by $31,000.

B. Income would decrease by 30,000.

C. Income would increase by $3,000.

D. Income would decrease by $81,000.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M943088

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