Week 6

(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

                             ...