Question: Pantheon Gaming, a computer enhancement company,
Pantheon 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:
Since the profit for accelerator devices is relatively low, the company is considering dropping this product line.
Required:
a. Determine the annual impact on profit of dropping accelerator products.
b. Discuss the potential qualitative effects of discontinuing the sale of accelerator products.
Transcribed Image Text:
Pantheon Gaming Income Statement For the Year Ended December 31, 2017 Audio Video Accelerators Total Sales Less cost of goods sold Gross margin Less other variable costs $1,200,000 $2,450,000 $2,400,000 $6,050,000 730,000 470,000 1,435,000 2,070,000 330,000 4,235,000 1,015,000 1,815,000 Contribution margin Less direct salaries 53,000 417,000 69,000 946,000 20,000 310,000 142,000 1,673,000 395,000 155,000 175,000 65,000 Less common fixed costs: Rent 11,970 25,830 25,200 63,000 Utilities 4,370 9,430 9,200 23,000 12,400 Depreciation Other administrative costs 5,890 12,710 31,000 79,230 170,970 166,800 417,000 Net income $ 160,540 $ 552,060 $ 31,400 $ 744,000
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