Question

DJH Enterprises has 3 departments. Operating results for 2019 are as follows:

Answer 1

Answer:

DJH Enterprises

The effect of eliminating Department 2 will increase the total operating income to $27,000 from $5,000.

Explanation:

a) Data and Calculations:

Operating Results for 2019 for the three departments:

                                     Department 1  Department 2 Department 3 Total

                                                                                                              ('000)

Sales                                 $670,000      $322,000       $856,000   $1,848

Variable costs                     445,000        287,000         602,000      1,334

Contribution margin        $225,000        $35,000       $254,000      $514

Direct fixed expenses      $120,000        $27,000        $163,000      $310

Common fixed expenses    75,000          30,000            94,000        199

Total fixed expenses       $195,000        $57,000       $257,000       509

Operating income (loss)   $30,000       ($22,000)         ($3,000)        $5

Loss-making departments eliminated:

                                     Department 1    Department 3        Total                                                      

Sales                                 $670,000       $856,000       $1,526,000

Variable costs                     445,000         602,000         1,047,000

Contribution margin        $225,000       $254,000        $479,000

Direct fixed expenses      $120,000        $163,000        $283,000

Common fixed expenses    75,000            94,000           169,000

Total fixed expenses       $195,000       $257,000        $452,000

Operating income (loss    $30,000          ($3,000)            27,000