Question
The following information is also necessary to assist you in your decision. 1 One of the part-time salaried employees in Department A has been with
The following information is also necessary to assist you in your decision. | |||||
1 | One of the part-time salaried employees in Department A has been with the company | ||||
for many years. If Department A is eliminated, she will be transferred to another | |||||
department with a salary of $3,500 per quarter. All other employees will be laid off. | |||||
2 | All departments are housed in the same building. The store leases the entire building | ||||
at a fixed annual rental rate and rent expenses are allocated based on space occupied. | |||||
3 | If Department A is eliminated, the utilities bill will be reduced by about $10,000 per | ||||
quarter. | |||||
4 | If Department A is eliminated, the fixtures in the department will be transferred to the | ||||
other departments. | |||||
5 | 30% of the insurance in Department A relates to the fixtures in the department; the | ||||
remainder relates to the department's merchandise inventory. |
6 | General office expenses will not change as they relate to the head office. | |||||
7 | The company has two service departments - purchasing and warehouse. If Department | |||||
A is eliminated, the company can lay off one full-time and one part-time person from | ||||||
these departments. The combined salaries and other employee costs of these | ||||||
employees are $4,800 per quarter. | ||||||
REQUIRED: | ||||||
a. | Assume the company has no alternative use for the space now being occupied by | |||||
Department A. Prepare a schedule to show whether or not the department should be | ||||||
eliminated. (Assume that eliminating Department A will have no effect on the other | ||||||
departments.) (16 marks) | ||||||
b. | Assume that the space being occupied by Department A is quite valuable and could be | |||||
subleased at a rental rate of $40,000 per quarter. Would you advise the company to | ||||||
eliminate Department A and sublease the space? (3 marks) | ||||||
c. | What is one qualitative factor that should be considered with this type of decision? | |||||
(1 mark) |
I need answers from 6 to the end.
The Vice President of a telecommunications company thinks that Department A needs to be eliminated as it is affecting the entire organization. You have been assigned the job of determining if Department A should be eliminated or not and informing the President. The following information has been gathered to assist you in making this decision: Income Statement For the Quarter Ended December 31, 2020 Sales less: Variable Costs Contribution Margin Total $1,445,000 887,000 $558,000 Department A B $250,000 $680,000 152,000 425,000 98,000 255,000 $515,000 310,000 205,000 88,500 25,000 38,000 25,500 Less fixed expenses: Direct advertising General company advertising* Salaries Rent on building** Utilities Depreciation of fixtures Insurance on inventory and fixtures General office expenses Service department allocations Total fixed expenses Operating income (loss) 32,000 136,800 78,000 33,000 40,000 5,536 37,500 19,500 11,000 10,800 15,059 55,300 31,200 12,200 16,300 11,405 44,000 27,300 9,800 12,900 3,700 75,000 1,200 25,000 1,400 25,000 1,100 25,000 42,000 529,000 $29,000 14,000 149,536 ($51,536) 14,000 208,459 $46,541 14,000 171,005 $33,995 * Allocated based on sales dollars ** Allocated based on space occupiedStep by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started