Dropping Unprofitable Department Penn Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows: Departments 1-3 Department 4 Total $1,230,000 Sales Cost of sales Gross profit Direct expenses Common expenses * % $1,050,000 661,500 388,500 $150,000 122,600 801,900 428,100 $177,000 145,200 Total expenses 322,200 272,600 Net income (Loss) $105,900 $115,900 a. Calculate the gross profit percentage for departments 1-3 combined and for department 4. Department 1-3 90.75 Department 4 9.25 b. What effect would elimination of department 4 have had on total firm net income? (Ignore the effect of income tax.) The firm's net income would be: $ 115,900 * % $180,000 140,400 39,600 $27,000 22,600 49,600 $(10,000) X

Dropping Unprofitable Department Penn Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows: Departments 1-3 Department 4 Total $1,230,000 Sales Cost of sales Gross profit Direct expenses Common expenses * % $1,050,000 661,500 388,500 $150,000 122,600 801,900 428,100 $177,000 145,200 Total expenses 322,200 272,600 Net income (Loss) $105,900 $115,900 a. Calculate the gross profit percentage for departments 1-3 combined and for department 4. Department 1-3 90.75 Department 4 9.25 b. What effect would elimination of department 4 have had on total firm net income? (Ignore the effect of income tax.) The firm's net income would be: $ 115,900 * % $180,000 140,400 39,600 $27,000 22,600 49,600 $(10,000) X

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Dropping Unprofitable Department Thomas Corporation has four departments, all of which appear to be profitable except department 4. Operating data for the year are as follows: Total Departments 1-3 Department 4 $1,000,000 Sales Cost of sales Gross profit Direct expenses $900,000 558,000 342,000 $120,000 $100,000 73,000 27,000 $24,000 11,000 35,000 $(8,000) 631,000 369,000 $144,000 Common expenses 107,000 Total expenses 251,000 Net income (Loss) $118,000 Required a. Calculate the gross profit percentage for departments 1-3 combined and for department 4. Department 1-3 0 % Department 4 0 % b. What effect would elimination of department 4 have had on total firm net income? (Ignore the effect of income tax.) The firm's net income would be: $ 0 96,000 216,000 $126,000
1 Saved Help Coolbrook Company has the following information available for the past year: River Division Stream Division $1,815,000 1,298,000 $517,000 Sales revenue $1,210,000 883,000 $ 327,000 $1,180,000 Cost of goods sold and operating expenses Net operating income Average invested assets $1,510,000 The company's hurdle rate is 6.76 percent. Required: 1. Calculate return on investment (ROI) and residual income for each division for last year. 2. Recalculate ROI and residual income for the division for each independent situation that follows: a. Operating income increases by 9 percent. b. Operating income decreases by 11 percent. c. The company invests $253,000 in each division, an amount that generates $101,000 additional income per division. d. Coolbrook changes its hurdle rate to 4.76 percent. Complete this auestion hy entering v ur answers in the tabs below. %24
[The following information applies to the questions displayed below.] Suresh Co. expects its five departments to yield the following income for next year. Dept. 0 $70,000 Dept. M Dept. N Dept. P Dept. T Total $77,000 $ 39,000 $56,000 $ 38,000 $ 280,000 Sales Expenses 14,800 55,800 70,600 42,400 18,600 19,000 43, 200 46,800 16,800 Avoidable 21,600 5, 200 26,800 $43, 200 144,600 139,600 Unavoidable Total expenses 61,000 $(22,000) 62,200 63,600 284, 200 Net income (loss) $ 6,400 $(6, 200) $(25,600) $ (4, 200) Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios. (1) Management eliminates departments with expected net losses. DEPARTMENTS WITH EXPEC TED NET LOSSES ELIMINATED Dept. M Dept. N Dept. O Dept. P Dept. T Total Sales Expenses: Avoidable Unavoidable Total expenses Net income (loss)
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• The following are selected data for the division for the consumer products of ABC Corp for 2019: Sales 50,000,000 Average invested capital (assets) 20,000,000 Net income 2,000,000 Cost of capital 8% What is the return on investment for the division? 1. 2% 2. 4% 3. 8% 4. 10% О1 O 2 3 O 4
90 Marston Corporation Statement of Income for the Year Ending December 31, 2022 Using Sales Agents Using Own Sales Force $26,000,000 Sales Cost of goods sold Variable Fixed Gross margin Marketing costs Commissions Fixed costs Operating income $11,700,000 2,870,000 4,680,000 3,420,000 $26,000,000 14,570,000 11,430,000 8,100,000 $ 3,330,000 $11,700,000 2,870,000 2,600,000 5,500,000 14,570,000 11,430,000 8,100,000 $ 3,330,000 Marston is considering hiring its own sales staff to replace the network of agents. Marston will pay its salespeople a commission of 10% and incur additional fixed costs of $2,080,000. 4 Required 1. Calculate Marston Corporation's 2022 contribution margin percentage, breakeven revenues, and degree of operating leverage under each of the two scenarios. (You will first have to recast the 2022 statement of income assuming Marston had hired its own sales staff.) 2. Describe the advantages and disadvantages of each type of sales alternative. 3. In 2023, Marston uses its…
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Assume a company with two divisions (A and B) prepared the following segmented income statement: A B Total Sales $ 300,000 $ 200,000 $ 500,000 Variable expenses 120,000 140,000 260,000 Contribution margin 180,000 60,000 240,000 Traceable fixed expenses 100,000 80,000 180,000 Segment margin $ 80,000 $ (20,000) 60,000 Common fixed expenses 50,000 Net operating income $ 10,000 The dollar sales required for the company to break even is closest to:
Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Total Department A Department B $ 800,000 350,000 450,000 $ 350,000 250,000 Sales $ 450,000 Variable expenses Contribution margin 100,000 100,000 350,000 Fixed expenses 400,000 140,000 260,000 Net operating income (loss) $ 50,000 $ (40,000) $ 90,000 The company says that $60,000 of the fixed expenses being charged to Department A are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department A is discontinued the sales in Department B will drop by 18%. What is the financial advantage (disadvantage) of discontinuing Department A? Multiple Choice $(103,000) $(83,000) $(92,000) $(101,000)
QUESTION 15 The following financial information is available for Beasties upper and lower divisions. Upper Lower Revenues $850,000 $700,000 Operating Expenses 470,000 460,000 Operating Income $380,000 $240,000 Assets Invested $2,000,000 $1,100,000 What is the ROI for the Upper Division? 21.8% 17.9% 19.0% 24.1%