Foot Print Has Three Product Lines in Its Retail Stores

question 25

Multiple Choice

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

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Definitions:

Recourse

The legal right to demand compensation or payment from an individual or entity in the case of an unfulfilled obligation or loss.

State-Owned Enterprise

An organization that is owned, controlled, and operated by a government entity.

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Risk Insurance

A financial product that provides a safeguard against potential losses or damages, transferring the risk from an individual or entity to an insurance provider.