Question

A guitar manufacturer is considering eliminating its electric guitar division because its $76,000 expenses are higher than its $72,000 sales. The company reports the following expenses for this division. Avoidable Expenses Unavoidable Expenses Cost of goods sold $ 56,000 Direct expenses 9,250 $ 1,250 Indirect expenses 470 1,600 Service department costs 6,000 1,430

Answer 1

Answer:

The electric guitar division should be: Kept

Explanation:

Currently it has a profit of $280 individually and After elimination it will incur a loss of $4280 which is the loss of profit of 280 and current loss of $4,000. This division should be kept because it is making enough profit to compensate all the avoidable and unavoidable expenses with making addition profit of $280, Otherwise there will be a net loss of $4,280 due to some unavoidable expenses.

Working is made in an attached MS Excel file, please find it.

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