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(TCO 7) Elliot's Escargots sells commercial and home snail extraction toolsand serving pieces. Currently, the Serving Pieces Section takesup approximately 50% of the company's retail floor space. The CEO ofElliot's wants to decide if the company should continue offering Serving Pieces or focus only on Snail Extraction Tools. If the Serving Piecesare dropped, salaries and other direct fixed costs can be avoided andSnail Extraction sales would increase by 25%. Allocated fixed costs areassigned based on relative sales.

Snail Extraction Serving
Tools Pieces Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 500,000 700,000 1,200,000
Contribution margin 700,000 100,000 800,000
Less Avoidable direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less Unavoidable allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
Executive salary 76,470 53,530 130,000
Other 7,058 4,942 12,000
Total costs 340,292 308,708 649,000
Net income $359,708 ($208,708) $151,000

Prepare an incremental analysis in good form to determine the incrementaleffect on profit of discontinuing the snail extraction tool line.


Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M941314

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