Question Completion:
Peggy's Golf Equipment, Inc. sells equipment through pro shops at golf courses. Peggy's Golf has two divisions: Golf Clubs and Golf Balls. For
Golf Clubs Golf Balls Total
Total Sales $371,000 $375,000 $746,000
Variable Costs 288,000 148,000 $436,000
Contribution Margin $83,000 $227,000 $310,000
Fixed Costs (allocated) 122,000 112,000 $234,000
Profit $(39,000) $115,000 $76,000
What would Peggy's profit be if the Golf Club division was dropped and all fixed costs are unavoidable?
a) $7,000 loss
b) $39,000 profit
c) $76,000 profit
d) $83,000 loss
Answer:
Peggy's Golf Equipment, Inc.
a) $7,000 loss
Explanation:
a) Data and Calculations:
Peggy's Divisional Income Statement
Golf Clubs Golf Balls Total
Total Sales $371,000 $375,000 $746,000
Variable Costs 288,000 148,000 $436,000
Contribution Margin $83,000 $227,000 $310,000
Fixed Costs (allocated) 122,000 112,000 $234,000
Profit $(39,000) $115,000 $76,000
Income Statement after dropping the Golf Club Division:
Total
Total Sales $375,000
Variable Costs 148,000
Contribution Margin $227,000
Fixed Costs (allocated) 234,000
Profit $(7,000)
Peggy will suffer a loss of $7,000 after dropping the golf club. The calculations are shown in the attachment.
Profit refers to the financial gain earned by a person or a business during the normal course of business. It is the difference between revenue and spending where revenue is more than spending.
On the other hand, if the spendings or expenses exceed the revenue, a loss will arise.
The calculation of profit/loss of Peggy after dropping the golf club is given in the attachment.
Since the fixed cost is unavoidable, they will be deducted as the whole amount.
Therefore the loss is $7,000.
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