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Computer Shack makes two types of laptop computers: slim-line and palm-size. Excess capacity exists for...

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Accounting

Computer Shack makes two types of laptop computers: slim-line and palm-size. Excess capacity exists for which no alternative use exists. Fixed overhead costs are allocated based on direct material cost. The product profitability of each product is:

imageThe palm-size model does not seem profitable and management decides to drop it. What is the impact on the profitability of the slim-line model?

Slim-Line Palm-Size Sales revenues Direct costs $500,000 (225,000) (180,000) $ 95,000 $250,000 (180,000) (120,000) $ (50,000) Fixed costs Profit

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