Questions #5-$10 Suresh Company has the following information regarding its five
ID: 2432055 • Letter: Q
Question
Questions #5-$10 Suresh Company has the following information regarding its five departments. M DeptN t T Total 17,500 28,000 1,50017,500 14,300 31,500 18,700 12,800 21,000 18,000 14,000 112,000 79,200 16,000 10 16,000 Contribution Margin Fixed Costs 3,000 (2,000 32,800 8,400 10,400 3.700 3,300 If any department is eliminated, only 60% of the fixed costs of that department can be eliminated. Should Department N be dropped? Type in 1 for Drop the department and Type in 2 for Keep the department What is the difference in the net income between keeping Department N and dropping Department N? If any department is eliminated, only 60% of the fixed costs of that department can be eliminated. Should Department P be dropped? Type in 1 for Drop the department and Type in 2 for Keep the department What is the difference in net income between dropping Department P and keeping Department P? If any department is eliminated, only 60% of the fixed costs of that department can be eliminated. Should Department T be dropped? Type in 1 for Drop the department and Type in 2 for Keep the department What is the difference in net income between keeping Department T and dropping Department T?Explanation / Answer
Answers
Requirement 1: IF Department 'N' is eliminated
Department
M
N
O
P
T
TOTAL
Sales
$ 31,500.00
$ -
$ 28,000.00
$ 21,000.00
$ 14,000.00
$ 94,500.00
Variable costs
$ 18,700.00
$ -
$ 10,500.00
$ 18,000.00
$ 16,000.00
$ 63,200.00
Contribution margin
$ 12,800.00
$ -
$ 17,500.00
$ 3,000.00
$ (2,000.00)
$ 31,300.00
Fixed Costs
$ 9,500.00
$ 3,400.00
$ 3,200.00
$ 3,700.00
$ 8,400.00
$ 28,200.00
Net Income
$ 3,300.00
$ (3,400.00)
$ 14,300.00
$ (700.00)
$ (10,400.00)
$ 3,100.00
---Since Net Income has increased from earlier (that is given in question) after eliminating ‘N’, Department ‘N’ SHOULD BE ELIMINATED [Type 1]
Net Income when Department N is eliminated
$ 3,100.00
Net Income when Department N was not eliminated
$ (500.00)
Difference in Net Income in keeping and dropping Department N
$ 3,600.00
Requirement 2: IF Department 'P' is eliminated
Department
M
N
O
P
T
TOTAL
Sales
$ 31,500.00
$ 17,500.00
$ 28,000.00
$ -
$ 14,000.00
$ 91,000.00
Variable costs
$ 18,700.00
$ 16,000.00
$ 10,500.00
$ -
$ 16,000.00
$ 61,200.00
Contribution margin
$ 12,800.00
$ 1,500.00
$ 17,500.00
$ -
$ (2,000.00)
$ 29,800.00
Fixed Costs
$ 9,500.00
$ 8,500.00
$ 3,200.00
$ 1,480.00
$ 8,400.00
$ 31,080.00
Net Income
$ 3,300.00
$ (7,000.00)
$ 14,300.00
$ (1,480.00)
$ (10,400.00)
$ (1,280.00)
---Since Net Income has decreased from earlier (that is given in question) after eliminating ‘P’, Department ‘P’ SHOULD NOT BE ELIMINATED [Type 2]
Net Income when Department P is eliminated
$ (1,280.00)
Net Income when Department P was not eliminated
$ (500.00)
Difference in Net Income in keeping and dropping Department P
$ (780.00)
Requirement 3: IF Department 'T' is eliminated
Department
M
N
O
P
T
TOTAL
Sales
$ 31,500.00
$ 17,500.00
$ 28,000.00
$ 21,000.00
$ -
$ 98,000.00
Variable costs
$ 18,700.00
$ 16,000.00
$ 10,500.00
$ 18,000.00
$ -
$ 63,200.00
Contribution margin
$ 12,800.00
$ 1,500.00
$ 17,500.00
$ 3,000.00
$ -
$ 34,800.00
Fixed Costs
$ 9,500.00
$ 8,500.00
$ 3,200.00
$ 3,700.00
$ 3,360.00
$ 28,260.00
Net Income
$ 3,300.00
$ (7,000.00)
$ 14,300.00
$ (700.00)
$ (3,360.00)
$ 6,540.00
---Since Net Income has INCREASED from earlier (that is given in question) after eliminating ‘T’, Department ‘T’ SHOULD BE ELIMINATED [Type 1]
Net Income when Department T is eliminated
$ 6,540.00
Net Income when Department T was not eliminated
$ (500.00)
Difference in Net Income in keeping and dropping Department T
$ 7,040.00
Requirement 1: IF Department 'N' is eliminated
Department
M
N
O
P
T
TOTAL
Sales
$ 31,500.00
$ -
$ 28,000.00
$ 21,000.00
$ 14,000.00
$ 94,500.00
Variable costs
$ 18,700.00
$ -
$ 10,500.00
$ 18,000.00
$ 16,000.00
$ 63,200.00
Contribution margin
$ 12,800.00
$ -
$ 17,500.00
$ 3,000.00
$ (2,000.00)
$ 31,300.00
Fixed Costs
$ 9,500.00
$ 3,400.00
$ 3,200.00
$ 3,700.00
$ 8,400.00
$ 28,200.00
Net Income
$ 3,300.00
$ (3,400.00)
$ 14,300.00
$ (700.00)
$ (10,400.00)
$ 3,100.00
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