Question

A guitar manufacturer is considering eliminating its electric guitar division because its $94,140 expenses are higher than its $88,420 sales. The company reports the following expenses for this division.

Avoidable Expenses Unavoidable Expenses
Cost of goods sold $66,500
Direct expenses 11,950 $2,650
Indirect expenses 860 1,850
Service department costs 8,800 1,530

Should the division be eliminated?

Answer 1

Electric Division Should be Kept

Step-by-step explanation:

Analysis of the decision is as follows :

Kept Eliminated

Sales $72,000

Expenses :

Direct Expenses $1,250

Indirect Expenses $1,600

Service Department Costs $1,430

Cost of Goods Sold $56,000

Total Expenses $56,000 $4,280

Net Income (Loss) $16,000 ($4,280)

Conclusion :

Electric Division Should be Kept since it is contributing tp the whole company profit than its taking from it.