Maxley Markets Company sells logo sports merchandise and does custom embroidery.
ID: 2507746 • Letter: M
Question
Maxley Markets Company sells logo sports merchandise and does custom embroidery. It is trying to decide whether or not to continue embroidery. The following information is available for the segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if the embroidery was dropped.
Embroidery
Apparel Sales
Sales
$120,000
$420,000
Variable Costs
$90,000
$220,000
Contribution Margin
$30,000
$200,000
Direct Fixed Costs
$18,000
$70,000
Allocated Common Fixed Costs
$20,000
$70,000
Net Income
($ 8,000)
$ 60,000
Embroidery
Apparel Sales
Sales
$120,000
$420,000
Variable Costs
$90,000
$220,000
Contribution Margin
$30,000
$200,000
Direct Fixed Costs
$18,000
$70,000
Allocated Common Fixed Costs
$20,000
$70,000
Net Income
($ 8,000)
$ 60,000
Explanation / Answer
a.)If the Embroidery segment is dropped the contribution margin of $ 30,000
will be lost and only the direct fixed costs of $ 18,000 will be saved. There
will be a loss of $ 12,000 profit ($ 30,000