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PROBLEM 7-9. Dropping a Product Line [LO 1, 2, 4] Pantheon Gaming, a computer enhancement company, has three product lines: audio enhancers,video...
PROBLEM 7-9. Dropping a Product Line [LO 1, 2, 4] Pantheon Gaming, a computer enhancementcompany, has three product lines: audio enhancers,video enhancers,and connection-speedaccelerators.Common costs are allocated based on relative sales.A product line income statementfollows:Pantheon GamingIncome StatementFor the Year Ended December 31, 2011Audio Video Accelerators TotalSales $1,045,000 $2,255,000 $2,200,000 $5,500,000Less cost of goods sold 575,000 1,240,000 1,870,000 3,685,000Gross margin 470,000 1,015,000 330,000 1,815,000Less other variable costs 53,000 69,000 20,000 142,000Contribution margin 417,000 946,000 310,000 1,673,000Less direct salaries 155,000 175,000 65,000 395,000Less common fixed costs:Rent 11,970 25,830 25,200 63,000Utilities 4,370 9,430 9,200 23,000Depreciation 5,890 12,710 12,400 31,000Other administrative costs 79,230 170,970 166,800 417,000Net income $160,540 $ 552,060 $ 31,400 $ 744,000Since the profit for accelerator devices is relatively low, the company is considering droppingthis product line.Requireda. Determine the impact on profit of dropping accelerator products.b. Discuss the potential qualitative effects of discontinuing the sale of accelerator products.
