Question

யுபாயானா The following information applies to the questions displayed below) Luxury Linens has three departments: Bath, Kitchen, and Bedding. The most recent income statement, showing the total operating profit and departmental results is shown below: Kitchen 5 ,899 Bedding 600,000 Total 2,182.ee 1,080,680 Less: Cost of Goods Sold • Gross Profit Less Direct Expenses Less: Allocated Expenses Net Income Closs) (500,000) See.ee (280,00) (189.000) 200,eee (360,000) 140.00 (120,000) (150,000) (13e.ee) (409,be) 200.000 (182.ee) (75,000) (1.264.ee 840.se (420,000) (325,880) 95.88 35.ee Based on this income statement, management is considering eliminating one of the departments. Whenever a department is eliminated, the other departments will expand to fill the space but sales are not expected to change. Twenty percent of Kitchen's Indirect expenses will be avoided due to restructuring. For Bath fifty percent and Bedding forty percent of their Indirect expenses will be avoided. Required: Prepare an analysis using the departmental income statements including a combined total column) for the company to determine which department should be eliminated ANALYSIS OF THE THREE DEPARTMENTS Bath Kitchen Bedding Vodie Costs To Avoid Costs Ecching

Answer 1

ANALYSIS OF THE THREE DEPARTMENTS
	Bath	Kitchen	Bedding	Total
Sales	1,000,000	500,000	600,000	2,100,000
Avoidable Costs
Cost of goods sold	500,000	360,000	400,000	1,260,000
Direct expenses	200,000	120,000	100,000	420,000
Indirect expenses	50,000	30,000	30,000	110,000
Total Avoidable costs	750,000	510,000	530,000	1,790,000
Effect on Income	$250,000	-$10,000	$70,000	$310,000

From the above table, it can be seen that Kitchen department should be eliminated.

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