Question

Suresh Co expects its five departments to yield the following income for next year

Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales $35,500 $17,100 $33,500 $33,000 $15,400 $134,500
Expenses
Avoidable 4,400 14,200 10,700 8,000 19,900 $57,200
Unavoidable 19,000 7,200 2,700 16,000 4,100 $49,000
Total expenses 23,400 21,400 13,400 24,000 24,000 106,200
Net income (loss) $12,100 $(4,300) $20,100 $,000 $(8,600) $28,300
Recompute and prepare the department income statements including e combined total column for the company under each of the following separate scenarios.
1. Management elimates departments with expected net losses.
DEPARTMENTS WITH EXPECTED NET LOSSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales ______ ______ ______ ______ ______
Expenses
Avoidable ______ ______ ______ ______ ______
Unavoidable ______ ______ ______ ______ ______
Total expenses
Net income (loss)
2. Management eliminates departments with sales dollars that are less than avoidable expenses.

DEPARTMENTS WITH SALES THAN AVOIDABLE EXPENSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales ______ ______ ______ ______ ______
Expenses
Avoidable ______ ______ ______ ______ ______
Unavoidable ______ ______ ______ ______ ______
Total expenses
Net income (loss)

Answer 1

Answer and Explanation:

The preparation is presented below

1.

Particulars Dept. M Dept N Dept O Dept P Dept T Total

Sales $35,500 0 $33,500 0 0 $102,000

Expenses

Avoidable $4,400 0 $ 10,700 0 0 $23,100

Unavoidable $19,000 $7,200 $2,700 $16,000 $4,100 $49,000

Total

expenses $23,400 $7,200 $13,400 ($16,000) ($4,100) $72,100

Net income

(loss) $12,100 ($7,200) $22,100 ($16,000) ($4,100) $29,900

As we can see that department N, P and T are suffering from losses so these are closed

2. Department N and T had fewer sales dollars than avoidable costs, and certain units will be dropped. Yet there will always be unavoidable costs to incur.

Particulars Dept. M Dept N Dept O Dept P Dept T Total

Sales $35,500 0 $33,500 $33,000 0 $102,000

Expenses

Avoidable $4,400 0 $ 10,700 $8,000 0 $23,100

Unavoidable $19,000 $7,200 $2,700 $16,000 $4,100 $49,000

Total

expenses $23,400 $7,200 $13,400 $24,000 $4,100 $72,100

Net income

(loss) $12,100 ($7,200) $22,100 $9,000 ($4,100) $29,900