[The following information applies to the questions displayed below.]Suresh Company reports the following segment (department) income results for the year.SalesExpensesAvoidableUnavoidableTotal expensesIncome (loss)Department M Department N Department 0 Department P Department T$ 82,000$ 44,000$ 78,000$ 65,000$ 43,000Total increase in income17,30057,80075, 100$ 6,90045,40021,60067,000$ (23,000)18,0005,70023,70051,30020,30071, 60021,50054,30075,800$ 54,300 $ (10,800) $ (28,600)Total$ 312,000153,500159, 700313, 200$ (1,200)b. Compute the al increase in income the departments with sales less than avoidable costs, as identified in part a, are eliminated.

1. Elimination of departments with sales less than avoidable cost will result in the following 2 things a. Reduction in sales income of the respective department and b.Reduction in Avoidable cost of the respective department 2. But it does not reduces the unavoidable cost of such department beacuse suresh company has to incur the unavoidable cost even though the departments are elimimated. 3. In simple terms, An avoidable cost is a cost that is not incurred if the activity is not performed. For example, supply expenses are avoidable costs. You can simply decide to not buy the supplies, and no expense will be incurred. These costs are often identified as variable costs, which vary based on production. If there is no production, there is no cost. An Unavoidable cost, on the other hand, is a cost that is still incurred even if the activity is not performed. For example, if a manufacturing plant shuts down, its avoidable cost is $ 0, but still it needs to incur aunavoidable cost like idle equipment lease payments, property taxes etc.., Departments Sales Avoidable cost Whether Avoidable cost exceeds Sales Department M 82000 17300 No Department N 44000 45400 Yes Departments O 78000 18000 No Departments P 65000 21500 No Departments T 43000 51300 Yes Therefore, The departments to be eliminated are N & T1. If Departments N & T are not eliminated then total loss will be $ 1200 2. Computation of Total Increase in profit if Departments N & T are eliminated Departments Department M Department N Departments O Departments P Departments T Total a Sales 82000 78000 65000 225000 Expenses b Avoidable cost 17300 18000 21500 56800 c Unavoidable cost 57800 21600 5700 54300 20300 159700 d Total expenses ( b +c ) 75100 21600 23700 75800 20300 216500 e Income / (loss) ( a - d) 6900 -21600 54300 -10800 -20300 8500 3. Total profit after elimination of Departments N & T are $ 8500 4. Total Increase in profit if Departments N & T are eliminated = 8500 + 1200 = $ 9700Total increase in profit after elimination of departments with sales less than avoidable cost is $ 9700

Answered: b. Compute the total increase in income…

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b. Compute the total increase in income if the departments with sales less than avoidable costs, as identified in part a, are eliminated.

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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