A company operates with two departments: Department AA and Department BB. The manager is considering to drop Department BB because of the income statement prepared by the bookkeeper shown below: Dept. AA Dept. BB Sales P3, 000, 000 P1, 000, 000 Less: Variable costs 900, 000 400,000 Contribution Margin 2, 100, 000 600,000 Less: Total Fixed costs 1, 400,000 800,000 Profit/(loss) P 700, 000 (P200,000) Of the total fixed costs, P350, 000 allocated to Det. BB is considered ass sunk cost. In addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur. a. What is the segment margin of Department BB ? b. If Dept. BB will be dropped, what will be the amount of operating income of the company
A company operates with two departments: Department AA and Department BB. The manager is considering to drop Department BB because of the income statement prepared by the bookkeeper shown below: Dept. AA Dept. BB Sales P3, 000, 000 P1, 000, 000 Less: Variable costs 900, 000 400,000 Contribution Margin 2, 100, 000 600,000 Less: Total Fixed costs 1, 400,000 800,000 Profit/(loss) P 700, 000 (P200,000) Of the total fixed costs, P350, 000 allocated to Det. BB is considered ass sunk cost. In addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur. a. What is the segment margin of Department BB ? b. If Dept. BB will be dropped, what will be the amount of operating income of the company
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:A company operates with two departments: Department AA and Department BB. The
manager is considering to drop Department BB because of the income statement prepared
by the bookkeeper shown below:
Dept. AA
Dept. BB
Sales P3, 000, 000
P1, 000, 000
Less: Variable costs 900, 000
400,000
Contribution Margin 2, 100, 000
600,000
Less: Total Fixed costs 1, 400,000
800,000
Operating Profit/(loss) P 700, 000
(P200,000)
Of the total fixed costs, P350, 000 allocated to Det. BB is considered ass sunk cost. In
addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur.
a. What is the segment margin of Department BB ?
--m
b. If Dept. BB will be dropped, what will be the amount of operating income of the company
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