Question

Suresh Co. expects its five departments to yield the following income for next year. Dept. MDept. NDept. ODept. PDept. TTotal Sales $82,000 $44,000 $78,000 $65,000 $43,000 $312,000 Expenses Avoidable 17,300 45,400 18,000 21,500 51,300 153,500 Unavoidable 57,800 21,600 5,700 54,300 20,300 159,700 Total expenses 75,100 67,000 23,700 75,800 71,600 313,200 Net income (loss) $6,900 $(23,000) $54,300 $(10,800) $(28,600) $(1,200) Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios
(1) Management eliminates departments with expected net losses.
DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED
Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales
Expenses:
Avoidable
Unavoidable
Total expenses
Net income (loss) $0 $0 $0 $0 $0 $0
(2) Management eliminates departments with sales dollars that are less than avoidable expenses.
DEPARTMENTS WITH LESS SALES THAN AVOIDABLE EXPENSES ELIMINATED
Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales
Expenses:
Avoidable
Unavoidable
Total expenses
Net income (loss) $0 $0 $0 $0 $0 $0

Answer 1

Answer:

(1) Because of the eliminations of Dept. N, Dept. P, and Dept. T, we have:

Total net loss = $35,000

(2) Because of the eliminations of Dept. N, and Dept. T, we have:

Total net income = $8,500

Explanation:

(1) Management eliminates departments with expected net losses.

Note: See answer (1) in the attached excel file for the eliminated departments (in red color).

From the answer (1) in the attached excel, the eliminated departments base on this are Dept. N, Dept. P, and Dept. T.

It can be seen from the answer (1) in the attached excel that because of the eliminations of Dept. N, Dept. P, and Dept. T, we have:

Total net loss = $35,000.

(2) Management eliminates departments with sales dollars that are less than avoidable expenses.

Note: See answer (2) in the attached excel file for the eliminated departments (in red color).

From the answer (2) in the attached excel, the eliminated departments base on this are Dept. N, and Dept. T.

It can be seen from the answer (2) in the attached excel that because of the eliminations of Dept. N, and Dept. T, we have:

Total net income = $8,500

Download xlsx