Question

Required Information The following information appliles to the questlons displayed below] Suresh Co. expects Its five departments to yleld the following Income for next year. Dept. M Dept. Dept. Dept. P $58,000 $44,000 Dept. T $ 30, 000 Total $234, 000 $65,000 37,000 $126, 000 $112, 600 10, 800 52, 600 63,400 $ 1,600 37, 600 23,000 15,000 39, 600 11, 200 13,800 51,400 $(14, 400 4, 400 0, 600 27, 400 4600 $30, 600 $1, 600) 238, 600 $ 4, 600 Total eO $(20, 800) Net income (l0ss) Recompute and prepare the departmental Income statements Including a comblned total column) for the company under each of the following separate scenarlos. (1) Management elilminates departments with expected net losses. TMENTS WITH CTED NET LOSSES ELIMIN Dept. M Dept. N Dept. O Dept. P Dept. T Total Sales Avoidable Unavoidable Total expenses Net income (loss) 0 5 0 5 0 5 0 5 0 5

Answer 1

1
DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED
	Dept. M	Dept. N	Dept. O	Dept. P	Dept. T	Total
Sales	65,000		58,000			123000
Expenses:						0
Avoidable	10,800		23,000			33800
Unavoidable	52,600	13,800	4,400	30,600	11,200	112,600
Total expenses	63,400	13,800	27,400	30,600	11,200	146,400
Net income (loss)	1,600	-13,800	30,600	-30,600	-11,200	-23,400
DEPARTMENTS WITH LESS SALES THAN AVOIDABLE EXPENSES ELIMINATED
	Dept. M	Dept. N	Dept. O	Dept. P	Dept. T	Total
Sales	65,000		58,000	44,000		167,000
Expenses:
Avoidable	10,800		23,000	15,000		48800
Unavoidable	52,600	13,800	4,400	30,600	11,200	112600
Total expenses	63,400	13,800	27,400	45,600	11,200	161,400
Net income (loss)	1,600	-13,800	30,600	-1,600	-11,200	5,600
1
ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME
Cost to buy new machine	($118,000)
Cash received to trade in old machine	50,000
Reduction in variable manufacturing costs	56,500	=(33600-22300)*5
Total change in net income	($11,500)
2
ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME
Cost to buy new machine	($111,000)
Cash received to trade in old machine	50,000
Reduction in variable manufacturing costs	115,000	=(33600-10600)*5
Total change in net income	$54,000
3
Alternative B should be selected