METROPOLITAN HOSPITAL LABORATORY The Metropolitan Laboratory conducts a wide var

ID: 2791977 • Letter: M

Question

METROPOLITAN HOSPITAL LABORATORY
The Metropolitan Laboratory conducts a wide variety of tests, but the 2018 departmental income statement, included below, shows a large amount if red ink. Financial analyts have recommended that the department be closed because of the red ink. REVENUE $1,200,000 LESS Direct Labor Expense $400,000 Supplies Expense $520,000 Departmental administration expense $240,000 Depreciation Expense $100,000 Allocated hospital overhead expenses $200,000 TOTAL EXPENSES $1,460,000 PROFIT (LOSS) $ (260,000) ASSIGNMENT AND QUESTIONS - Please provide formulas for excel sheet 1. Construct a contribution margin income statement (Please provide formulas for excel sheet) 2. Should the Department be closed if we only consider a short-run financial persepective? 3. Should the department be closed is we assume no significant changes at the hospiotal and a long-run financial perspective? METROPOLITAN HOSPITAL LABORATORY
The Metropolitan Laboratory conducts a wide variety of tests, but the 2018 departmental income statement, included below, shows a large amount if red ink. Financial analyts have recommended that the department be closed because of the red ink. REVENUE $1,200,000 LESS Direct Labor Expense $400,000 Supplies Expense $520,000 Departmental administration expense $240,000 Depreciation Expense $100,000 Allocated hospital overhead expenses $200,000 TOTAL EXPENSES $1,460,000 PROFIT (LOSS) $ (260,000) ASSIGNMENT AND QUESTIONS - Please provide formulas for excel sheet 1. Construct a contribution margin income statement (Please provide formulas for excel sheet) 2. Should the Department be closed if we only consider a short-run financial persepective? 3. Should the department be closed is we assume no significant changes at the hospiotal and a long-run financial perspective?

Explanation / Answer

multistep income statement

revenue

1200000

less cost of goods sold

920000

direct labor expense

400000

supplies expense

520000

contribution margin

280000

less operating expense

340000

administration expenses

240000

depreciation expenses

100000

operating profit

-60000

decision to discontinue the businessmust not be based on irrelevant information such as allocated fixed overhead because allocated fixed overhead will not be eliminated if the product line or department is dropped.

2-No in the short run perspective hospital should be continue, even hospital's in running in loss and not able to recover its operating expenses, so changes can be made to improve the financial performance

3- Yes in the long run perspective hospital should be discontinue, even when there is no significant changes in hospital's and it will be run in loss and not able to recover its operating expenses, so it should be closed