Question
Dropping Unprofitable Department Penn Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows:
Dropping Unprofitable Department
Penn Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows:
Total | Departments 1-3 | Department 4 | ||
---|---|---|---|---|
Sales | $1,230,000 | $1,050,000 | $180,000 | |
Cost of sales | 801,900 | 661,500 | 140,400 | |
Gross profit | 428,100 | 388,500 | 39,600 | |
Direct expenses | $177,000 | $150,000 | $27,000 | |
Common expenses | 145,200 | 122,600 | 22,600 | |
Total expenses | 322,200 | 272,600 | 49,600 | |
Net income (Loss) | $105,900 | $115,900 | $(10,000) |
a. Calculate the gross profit percentage for departments 1-3 combined and for department 4.
Department 1-3: Answer% Department 4: Answer%
b. What effect would elimination of department 4 have had on total firm net income? (Ignore the effect of income tax.)
The firm's net income would be: $Answer
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