Superior 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 for the year ended December 31, 2011 follows:
|
Audio |
Video |
Accelerators |
Total |
||||
|
Sales |
$1,045,000 |
$2,255,000 |
$2,200,000 |
$5,500,000 |
|||
|
Less COGS |
575,000 |
1,240,000 |
1,870,000 |
3,685,000 |
|||
|
Gross margin |
470,000 |
1,015,000 |
330,000 |
1,815,000 |
|||
|
Less other var costs |
53,000 |
69,000 |
20,000 |
142,000 |
|||
|
Contribution margin |
417,000 |
946,000 |
310,000 |
1,673,000 |
|||
|
Less direct salaries |
155,000 |
175,000 |
65,000 |
395,000 |
|||
|
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 admin costs |
79,230 |
170,970 |
166,800 |
417,000 |
|||
|
Net income |
$160,540 |
$552,060 |
$31,400 |
$744,000 |
|||
Since the profit for accelerators is relatively low, the company is considering dropping this product line. What is the incremental effect of dropping accelerators?
|
|
a. ($310,000) |
|
|
b. $31,400 |
|
c. |
($245,000) |
|
d. |
$499,000 |
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