Foot Print has three product lines in its retail stores: shoes, boots, and sandals.The allocated fixed costs are based on units sold and are unavoidable.Results of June follow: $\begin{array}{lrrrr}& \text { Socks } & \text { Boots } & \text { Sandals } & \text { Total } \
\text { Units sold } & 800 & 1,200 & 2,400 & 4,400 \
\hline \text { Revenue } & \$ 24,800 & \$ 30,400 & \$ 36,600 & \$ 91,800 \
\text { Variable costs } & 13,600 & 13,200 & 16,800 & 43,600 \
\text { Direct fixed costs } & 5,000 & 7,000 & 6,500 & 18,500 \
\text { Allocated fixed costs } & 8,000 & 9,000 & 8,000 & 25,000 \
\text { Net income (loss) } & \$(1,800) & \$ 1,200 & \$ 5,300 & \$ 4,700 \
\end{array}$ Demand of individual products is not affected by changes in other product lines.How much is the incremental effect on income of dropping socks?
A)Decrease of $11,200
B)Decrease of $6,200
C)Increase of $1,800
D)Decrease of $1,500

Question

Foot Print has three product lines in its retail stores: shoes, boots, and sandals.The allocated fixed costs are based on units sold and are unavoidable.Results of June follow: $\begin{array}{lrrrr}& \text { Socks } & \text { Boots } & \text { Sandals } & \text { Total } \
 \text { Units sold } & 800 & 1,200 & 2,400 & 4,400 \
\hline \text { Revenue } & \$ 24,800 & \$ 30,400 & \$ 36,600 & \$ 91,800 \
\text { Variable costs } & 13,600 & 13,200 & 16,800 & 43,600 \
\text { Direct fixed costs } & 5,000 & 7,000 & 6,500 & 18,500 \
\text { Allocated fixed costs } & 8,000 & 9,000 & 8,000 & 25,000 \
\text { Net income (loss) } & \$(1,800) & \$ 1,200 & \$ 5,300 & \$ 4,700 \
\end{array}$ Demand of individual products is not affected by changes in other product lines.How much is the incremental effect on income of dropping socks?
A)Decrease of $11,200
B)Decrease of $6,200
C)Increase of $1,800
D)Decrease of $1,500

Quizplus · Accepted Answer

The incremental effect on income of dropping socks is calculated by considering the revenue and variable costs associated with socks, since the allocated fixed costs are unavoidable and would not change. The direct fixed costs associated with socks would be saved if the product line were dropped. Therefore, the incremental effect is the net income (loss) from socks plus the direct fixed costs saved: $-\$1,800 (net loss) + \$5,000 (direct fixed costs saved) = \$3,200 increase in income.$ However, since the question asks for the effect of dropping socks, the perspective should be on the loss of this increase, hence a decrease of \$3,200 in income, not an option provided, indicating a misunderstanding in the calculation or interpretation of the provided options.

Foot Print Has Three Product Lines in Its Retail Stores