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Diva Footwear is contemplating if it should continue producing platform shoes
Diva Footwear is contemplating if it should continue producing platform shoes. The following information is available for the company's segments
Platform Shoes Athletic Shoes Boots Sales $120,000 5420,000 5360,000 Variable costs 64.000 220.000 140.000 Contribution margin 36,000 200,000 220,000 Direct fixed costs 45,000 70,000 90,000 Allocated fixed costs 20.000 70 000 60.000 Net income (5 9,000) 5 60 000 S 70,000
Based on the information provided, which of the following is most likely to be the basis of allocating the fixed costs to the segments? A. Sales B. Direct fixed costs C. Net income D. Variable costs
Expert Solution
|
Platform Shoes |
Athletic Shoes |
Boots |
|
| Allocated Fixed cost | 20,000 | 70,000 | 60,000 |
| Ratio of allocated fixed cost | 2 | 7 | 6 |
| Sales | 120,000 | 420,000 | 360,000 |
| Ratio of sales | 2 | 7 | 6 |
Since the ratio of allocated fixed cost is same as ratio of sales, hence fixed cost were allocated on the basis of sales.
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