Suresh Co expects its five departments to yield the following income for next year Recompute and...

Question:

Suresh Co expects its five departments to yield the following income for next year

Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales $35,500 $17,100 $33,500 $33,000 $15,400 $134,500
Expenses
Avoidable 4,400 14,200 10,700 8,000 19,900 $57,200
Unavoidable 19,000 7,200 2,700 16,000 4,100 $49,000
Total expenses 23,400 21,400 13,400 24,000 24,000 106,200
Net income (loss) $12,100 $(4,300) $20,100 $,000 $(8,600) $28,300

Recompute and prepare the department income statements including e combined total column for the company under each of the following separate scenarios.

1. Management elimates departments with expected net losses.

DEPARTMENTS WITH EXPECTED NET LOSSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales ______ ______ ______ ______ ______
Expenses
Avoidable ______ ______ ______ ______ ______
Unavoidable ______ ______ ______ ______ ______
Total expenses
Net income (loss)

2. Management eliminates departments with sales dollars that are less than avoidable expenses.

DEPARTMENTS WITH SALES THAN AVOIDABLE EXPENSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales ______ ______ ______ ______ ______
Expenses
Avoidable ______ ______ ______ ______ ______
Unavoidable ______ ______ ______ ______ ______
Total expenses
Net income (loss)

Relevant Costs In Eliminating A Segment

Relevant costs relate to future costs that need to be considered when making decisions. An example of such a decision is whether or not to eliminate a segment or a department within the company. Relevant costs of such a decision include avoidable costs if a segment is dropped. Common allocated costs are irrelevant and should not be added in the analysis since these costs will continue even if a segment is eliminated.

Answer and Explanation:

1.

Dept M Dept N Dept O Dept P Dept T Total
Sales 35,500 33,500 33,000 102,000
Expense
Avoidable 4,400 10,700 8,000 23,100
Unavoidable 19,000 7,200 2,700 16,000 4,100 49,000
Total Expenses 23.400 7,200 13,400 24,000 4,100 72,100
Net Income (Loss) 12,100 (7,200) 20,100 9,000 (4,100) 29,900

2.

Dept M Dept N Dept O Dept P Dept T Total
Sales 35,500 17,100 33,500 33,000 119,100
Expense
Avoidable 4,400 14,200 10,700 8,000 37,300
Unavoidable 19,000 7,200 2,700 16,000 4,100 49,000
Total Expenses 23.400 21,400 13,400 24,000 4,100 72,100
Net Income (Loss) 12,100 (4,300) 20,100 9,000 (4,100) 32,800

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Relevant Costs in Eliminating a Product or Segment

from Accounting 301: Applied Managerial Accounting

Chapter 9 / Lesson 12
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