JD's Sporting Products, Inc., is a distributor of both tennis and golf equipment. Currently, the golf equipment takes up 50% of the floor space in the company's distribution center. The CEO is considering whether the company should discontinue the golf equipment line and focus on tennis equipment. The table below contains the most recent income statement by product line. If the golf equipment line is discontinued, all salaries and other direct fixed costs can be avoided. In addition, sales of tennis equipment can be increased by 15% with no impact on direct fixed costs. The common fixed costs have been allocated to the two product lines based on relative sales, and all will continue whether the golf line is dropped or retained, and will continue at their present levels if tennis sales expand by as much as 15%.
Required:
Perform an incremental analysis to determine the financial advantage or disadvantage for dropping the golf equipment line.

Question

JD's Sporting Products, Inc., is a distributor of both tennis and golf equipment. Currently, the golf equipment takes up 50% of the floor space in the company's distribution center. The CEO is considering whether the company should discontinue the golf equipment line and focus on tennis equipment. The table below contains the most recent income statement by product line. If the golf equipment line is discontinued, all salaries and other direct fixed costs can be avoided. In addition, sales of tennis equipment can be increased by 15% with no impact on direct fixed costs. The common fixed costs have been allocated to the two product lines based on relative sales, and all will continue whether the golf line is dropped or retained, and will continue at their present levels if tennis sales expand by as much as 15%.
  Required:
Perform an incremental analysis to determine the financial advantage or disadvantage for dropping the golf equipment line.

Quizplus · Accepted Answer

The Answer of JD's Sporting Products, Inc., is a distributor of both tennis and golf equipment. Currently, the golf equipment takes up 50% of the floor space in the company's distribution center. The CEO is considering whether the company should discontinue the golf equipment line and focus on tennis equipment. The table below contains the most recent income statement by product line. If the golf equipment line is discontinued, all salaries and other direct fixed costs can be avoided. In addition, sales of tennis equipment can be increased by 15% with no impact on direct fixed costs. The common fixed costs have been allocated to the two product lines based on relative sales, and all will continue whether the golf line is dropped or retained, and will continue at their present levels if tennis sales expand by as much as 15%.
  Required:
Perform an incremental analysis to determine the financial advantage or disadvantage for dropping the golf equipment line.