McKees Outdoor Store Ltd operates three departments, including a department that has consistently shown losses. For the
Question:
McKee’s Outdoor Store Ltd operates three departments, including a department that has consistently shown losses. For the year just ended, the fishing supplies department showed the following performance:
Sales Cost of sales | $76 000 20 000 | ||
Gross profit Expenses | 56 000 78 800 | ||
Loss | $ (22 800) |
The expenses include allocated indirect expenses amounting to $42 600, which will be incurred whether the department is operated or not. The remainder of the expenses are direct, but include $30 000 that will have to be reassigned to another department because that amount is the salary of the owner’s daughter, who will be kept employed regardless of the decision made about the fishing supplies department.
Required
Should the fishing department be eliminated? Support your answer with calculations showing the effect on storewide profits of eliminating the department.
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett