The condensed income statement shows the following information for Department R:

Question

The condensed income statement shows the following information for Department R: Sales, $2,000,000; Cost of Goods Sold, $1,200,000; Gross Profit, $800,000; Operating Expenses, $1,000,000; Loss from Operations, ($200,000). Assume that $360,000 of the cost of goods sold represent fixed factory overhead costs and $400,000 of the operating expenses are fixed costs. None of the fixed costs would change if Department R is eliminated. If Department R is discontinued, what would the effect on overall net income for the company be?

Explanation / Answer

If R is discontinued, total cost = $360,000 + $400,000 = $760,000 Loss if R is not discontinued = $200,000 So, if R is discontinued, the overall net income would decrease by $760,000- $200,000 = $560,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.