Acc346 Managerial Accounting: Week 6 (TCO 7) Elliot’s Escargots

Acc346 Managerial Accounting Week 6 : Budgeting and Standard Costing (TCO 7) Elliot’s Escargots sells commercial and home snail extraction tools and serving pieces. Currently, the snail extraction line of products takes up approximately 50 percent of the company’s retail floor space. The CEO of Elliot’s wants to decide if the company should continue offering snail extraction tools or focus only on serving pieces. If the snail extraction tools are dropped, salaries and other direct fixed costs can be avoided and serving piece sales would increase by 13 percent. Allocated fixed costs are assigned based on relative sales. Snail Extraction Serving Tools Pieces Total Sales $1,200,000 $800,000 $2,000,000 Less cost of goods sold 700,000 500,000 1,200,000 Contribution margin 500,000 300,000 800,000 Less direct fixed costs: Salaries 175,000 175,000 350,000 Other 60,000 60,000 120,000 Less allocated fixed costs: Rent 14,118 9,882 24,000 Insurance 3,529 2,471 6,000 Cleaning 4,117 2,883 7,000 Executive salary 76,470 53,530 130,000 Other 7,058 4,942 12,000 Total costs 340,292 308,708 649,000 Net income $159,708 ($ 8,708) $151,000
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