Question

[The following information applies to the questions displayed below.] Suresh Co. expects its five departments to yield the following income for next year. Dept. M $67,000 Dept. N $ 37,000 Dept. o $60,000 Dept. P $ 46,000 Dept. T $ 32,000 Total $242,000 Sales Expenses Avoidable Unavoidable Total expenses Net income (loss) 11,800 53,400 65,200 $ 1,800 38,800 15,000 53,800 $(16,800) 23,600 4,600 28, 200 $31,800 16,000 31,800 47,800 $(1,800) 41,400 12,600 54,000 $ (22,000) $ 131,600 $117,400 249,000 $ (7,000) Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios. (1) Management eliminates departments with expected net losses. DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED Dept. M Dept. N Dept. o Dept. P Dept. Total Sales Expenses: Avoidable Unavoidable Total expenses Net income (loss) s o$ os o$ os o$

Answer 1

Solution:

1.) Management eliminates departments with expected net losses.

Department With Expected Net Losses Eliminated

	Dept. M	Deot.B	Dept.O	Dept.P	Dept.T	Total
Sales	$67,000		$60,000			$127,000
Expenses:
Avoidable	$11,800		$23,600			$35,400
Unavoidable	$53,400	$15,000	$4,600	$31,800	$12,600	$117,400
Total expenses	$65,200	$15,000	$28,200	$31,800	$12,600	$152,800
Net income (loss)	$1800	$(15000)	$31,800	$(31,800)	$(12,600)	$(25,800)

2.)

Department With Less Sales Than Avoidable Expenses Eliminated

	Dept. M	Dept. N	Dept. O	Dept. P	Dept. T	Total
Sales	$67,000		$60,000	$46,000		$173,000
Expenses:
Avoidable	$11,800		$23,600	$16,000		$51,400
Unavoidable	$53,400	$15,000	$4,600	$31,800	$12,600	$117,400
Total expenses	$65,200	$15,000	$28,200	$47,800	$12,600	$168,800
Net income (loss)	$1,800	$(15,000)	$31,800	$(1,800)	$(12,600)	$4,200