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(Managerial Accounting) Analysis of Possible Elimination of Department: Complete below problem using EXCEL and EXCEL formulas. Explain why you made your decisions. Analysis of possible
(Managerial Accounting) Analysis of Possible Elimination of Department: Complete below problem using "EXCEL" and "EXCEL" formulas. Explain why you made your decisions.
Analysis of possible elimination of a department A1 Esme Company's management is trying to decide whether to eliminate Department Z, which has produced low profits or losses for several years. The company's 2015 departmental income statements show the following ESME COMPANY For Year Ended December 31,201S Dept. ADopt.Z Combined $700,000 $175,000 $875,000 49,900 Sales .461.300 125,100 586 400 288,600 of goods sold Gross profit 238,700 Operating expenses Direct expenses 27,000 3,000 I.400 7,000 11.400 30,000 7,000 21,000 58,000 Store supplles used 4,000 46,600 Total direct expenses Allocated expenses 70,200 22,080 21,000 20,800 23,400 Sales salaries Rent expense Bad debts expense omce salary Insurance expense 27,600 4,000 5,200 I.400 1.700 2.500 4.200 139.980 42020 182.000 26,000 5,600 Total allocated expenses Total expenses Not income (lss. 52.120 3520) 48.600 186,580 53420 240.000 In analyzing whether to eliminate Department Z, management considers the following items a. The company has one office worker who earns $500 per week or $26,000 per year and four b. The full salaries of three salesclerks are charged to Department A. The full salary of one salesclerk is c. Eliminating Department Z would avoid the sales salaries and the office salary currently allocated to it. salesclerks who each earn $450 per week or $23,400 per year for each salesclerk. charged to Department Z. However, management prefers another plan. Two salesclerks have indicated that they will be quitting soon. Management believes that their work can be done by the two remaining clerks if the one office worker works in sales half-time. Eliminating Department Z will allow this shift of duties. If this change is implemented, half the office worker's salary would be reported as sales salaries and half would be reported as office salary d. The store building is rented under a long-term lease that cannot be changed. Therefore, Department A will use the space and equipment currently used by Department Z e. Closing Department Z will eliminate its expenses for advertising, bad debts, and store supplies; 65% of the insurance expense allocated to it to cover its merchandise inventory; and 30% of the miscellaneous office expenses presently allocated to it. Required 1. Prepare a three-column report that lists items and amounts for (a) the company's total expenses (including cost of goods sold)-in column 1, (b) the expenses that would be eliminated by closing Department Z-in column 2, and (c) the expenses that will continue-in column 3. 2. Prepare a forecasted annual income statement for the company reflecting the elimination of Department Z assuming that it will not affect Department A's sales and gross profit. The statement should reflect the reassignment of the office worker to one-half time as a salesclerk. Analysis Component 3. Reconcile the company's combined net income with the forecasted net income assuming that Department Z is eliminated (list both items and amounts). Analyze the reconciliation and explain why you think the department should or should not be eliminated. Check (1) Total expenses: (a) S826,400, (b) $181,960 (2) Forecasted net income without Department Z,$55,560Step by Step Solution
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