Question

Type your answer in the box. Jay's Furniture makes several types of furniture including couches and loveseats. Last year total contribution margin was $900,000 for couches and $350,000 for loveseats. Loveseats had a segment margin of $50,000 and common fixed costs of $100,000 so the company is considering stopping loveseat production. If that happens, sales of couches is expected to increase by 10%, The net impact of stopping production of loveseats will (increase/decrease) profits by $ Read about thia Do you know the answer? I know it Think so Unsure No idea

Answer 1

Increase profits by $40,000

Step-by-step explanation:

The computation of the net impact of stopping production of love seats is shown below:

= Contribution margin × increased percentage - segment margin

= $900,000 × 10% - $50,000

= $90,000 - $50,000

= $40,000

Since the amount comes in positive which means that the profits is increased by $40,000

All other information which is given is not relevant. Hence, ignored it