Question
A company has two departments, Kids and Adults. The companys most recent monthly contribution format income statement follows: Department Total Kids Adults Sales $4,200,000 $3,000,000
A company has two departments, Kids and Adults. The companys most recent monthly contribution format income statement follows:
Department | |||
Total | Kids | Adults | |
Sales | $4,200,000 | $3,000,000 | $1,200,000 |
Variable expenses | 2,000,000 | 1,500,000 | 500,000 |
Contribution Margin | 2,200,000 | 1,500,000 | 700,000 |
Fixed Expenses | 2,200,000 | 1,300,000 | 900,000 |
Net operating income (loss) | 0 | 200,000 | (200,000) |
A study indicates that $250,000 of the fixed expenses being charged to the Adults Department are sunk costs or allocated costs that will continue even if the Adults Department is dropped. In addition, the elimination of the Adults Department will result in a 30% decrease in the sales of the Kids Department. If the Adults Department is dropped, what will be the effect on the net operating income of the company as a whole?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started