Question

A guitar manufacturer is considering eliminating its electric guitar division because its $76,000 expenses are higher than its $72,000 sales. The company reports the following expenses for this division. Avoidable Expenses Unavoidable Expenses Cost of goods sold$56,000 Direct expenses 9,250 $1,250 Indirect expenses 470 1,600 Service department costs 6,000 1,430 Should the division be eliminated

Answer 1

The electric division should be kept

Step-by-step explanation:

The computation of given question is shown below:-

Electric guitar division Kept Eliminated

Sales $72,000 $0

Expenses

Cost of goods sold $56,000 0

Direct expenses $9,250 $1,250

Indirect expenses $470 $1,600

Service department cost $6,000 $1,430

Total expenses $71,720 $4,280

Net income (loss) $280 ($4,280)

($72,000 - $71,720)

Therefore the electric division should be kept