Questions 1-2 (of 8) Exercise 10-10 Analysis of income effects from eliminating

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Questions 1-2 (of 8) Exercise 10-10 Analysis of income effects from eliminating departments LO A1 IThe following information applies to the questions displeyed below Suresh Co expects its five departments to yleld the following income for next year |Dept P $33,000 $ Dept. N $35.500 17100 Dept M ota ept Sales 15.400 $134,500 Expenses Avoldable Unavoidable 4,40014,200 19,000 7,200 10.700 2,700 8.000 16.000 19,900 57.200 4100 $ 49000 23.400 214003,40024000 24000 106.200 Total expenses 24.000 Net income toss) 12100 $(4300) $20100 9,000(8,600) $ 28,300 Recompute and prepare the departmentel income stetements ondludng e combinedtotal colum) for the company under esch of the following seperate scenarios References Exerciee 10-10 Analysis of income effecta from elmnating deparurents LO A Section Break

Explanation / Answer

Case - 1 Here department with losses will be eliminated. That means Dept N and Dept T will be eliminated. In such case, we will have sales revenue = Zero and avoidable expenses shall also be = Zero. But Unavoidable expenses shall continue to be incurred.

Case - 2

Here, we have only one deparment with avoidable expenses value more than the sales revenue generated by it. So Dept - T shall be eliminated.

Dept M Dept N Dept O Dept P Dept T Total Sales 35500 0 33500 33000 0 102000 Expenses Avoidable 4400 0 10700 8000 0 23100 Unavoidable 19000 7200 2700 16000 4100 49000 Total Expenses 23400 7200 13400 24000 4100 72100 Net Income (loss) 12100 -7200 20100 9000 -4100 29900

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