Wedding Supply is trying to decide whether or not to continue distributing reception supplies. The following information is available for Wedding Supply's business segments. $\begin{array}{lrrr}&\text { ReceptionSunplies}&\text { BridaL Dresses}&\text { EloraL Decorations }\
\text { Sales } & \$ 160,000 & \$ 110,000 & \$ 210,000 \
\text { Variable costs } & 84,000 & 50,000 & 120,000 \
\hline \text { Contribution margin } & 76,000 & 60,000 & 90,000 \
\text { Direct fixed costs } & 50,000 & 20,000 & 25,000 \
\text { Allocated common fixed costs } & 30,000 & 25,000 & 30,000 \\text { Net income }&(\$4,000)&\$15,000&\$35,000
\end{array}$ If reception supplies are dropped, what change will occur to profit?

Question

Wedding Supply is trying to decide whether or not to continue distributing reception supplies. The following information is available for Wedding Supply's business segments. $\begin{array}{lrrr}&\text { ReceptionSunplies}&\text {  BridaL Dresses}&\text {  EloraL Decorations }\
\text { Sales } & \$ 160,000 & \$ 110,000 & \$ 210,000 \
\text { Variable costs } & 84,000 & 50,000 & 120,000 \
\hline \text { Contribution margin } & 76,000 & 60,000 & 90,000 \
\text { Direct fixed costs } & 50,000 & 20,000 & 25,000 \
\text { Allocated common fixed costs } & 30,000 & 25,000 & 30,000 \\text { Net income }&(\$4,000)&\$15,000&\$35,000
\end{array}$ If reception supplies are dropped, what change will occur to profit?

Quizplus · Accepted Answer

If reception supplies are dropped, the allocated common fixed costs of $30,000 will be eliminated, and the net income will increase by $4,000 (the current net loss of $4,000 plus the allocated common fixed costs of $30,000).

Wedding Supply Is Trying to Decide Whether or Not to Continue