Question

he management accountant for​ Giada's Book Store has prepared the following income statement for the most current​ year: Cookbook Travel Book Classics Total Sales $68,000 $126,000 $53,000 $247,000 Cost of goods sold 40,000 66,000 21,000 127,000 Contribution margin 28,000 60,000 32,000 120,000 Order and delivery processing 21,000 24,000 11,000 56,000 Rent​ (per sq. foot​ used) 2,000 5,000 4,000 11,000 Allocated corporate costs 8,000 8,000 8,000 24,000 Corporate profit ​$​ (3,000​) $23,000 $9,000 $29,000 If the cookbook product line had been discontinued prior to this​ year, the company would have reported​ ________.

Answer 1

Giada's Book Store

The company would have reported a total profit of $19,000, which is $10,000 less.

Step-by-step explanation:

a) Data and Calculations:

Income statement for the most current​ year:

Cookbook Travel Book Classics Total

Sales $68,000 $126,000 $53,000 $247,000

Cost of goods sold 40,000 66,000 21,000 127,000

Contribution margin 28,000 60,000 32,000 120,000

Order and delivery processing 21,000 24,000 11,000 56,000

Rent​ (per sq. foot​ used) 2,000 5,000 4,000 11,000

Allocated corporate costs 8,000 8,000 8,000 24,000 Corporate profit ​$​ (3,000​) $23,000 $9,000 $29,000

Corporate profit = $29,000

less allocated cookbook costs 10,000

Adjusted corporate profit = $19,000

b) Discontinuing the Cookbook product line would have eliminated the contribution the product line makes to defraying Rent and Allocated Corporate costs totalling $10,000 unless the Rental space was a variable cost.