Klein Enterprises, which has three departments, recently reported the following
ID: 2425094 • Letter: K
Question
Klein Enterprises, which has three departments, recently reported the following results:
The company incurred variable operating costs as well as $25,000 of fixed operating costs. The $25,000 amount was allocated to A, B, and C on the basis of sales revenue and is included in the cost figures noted above. Which department(s), if any, should be closed if none of the fixed operating costs can be avoided
:
A B C Sales revenue $12,000 $48,000 $40,000 Less: Operating costs 11,400 59,800 50,500 Operating income (loss) $600 $(11,800) $(10,500)Explanation / Answer
A B C SALES REVENUE 12000 48000 40000 VARIABLE COST 8400 47800 40500 CONTRIBUTION 3600 200 -500 FIXED OPERATING COST 25000 3000 12000 10000 OPERATING PROFIT OR LOSS 600 -11800 -10500 AS BOTH PRODUCT B & C ARE IN LOSS BUT PRODUCT IS NOT ABLE TO RECOVER ITS VARIABLE OPERATING COST AND IT IS NOT ABLE TO RECOVER ANY SINGLE VALUE OF FIXED OPERATING COST SO PRODUCT C WOULD BE CLOSED FIRST
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