Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume a retailing company has two departments Department A and Department B . The company s most recent contribution format income statement follows: Total Department

Assume a retailing company has two departmentsDepartment A and Department B. The companys most recent contribution format income statement follows:
Total Department A Department B
Sales $ 800,000 $ 350,000 $ 450,000
Variable expenses 320,000120,000200,000
Contribution margin 480,000230,000250,000
Fixed expenses 400,000140,000260,000
Net operating income (loss) $ 80,000 $ 90,000 $ (10,000)
The company says that $140,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 11%. What is the financial advantage (disadvantage) of discontinuing Department B?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: Marshall B. Romney, Paul J. Steinbart

14th edition

134474023, 978-0134474021

More Books

Students also viewed these Accounting questions

Question

What are the three variable investigation procedures? pg74

Answered: 1 week ago