Dropping Unprofitable DepartmentThomas 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$1,000,000SalesCost of salesGross profitDirect expenses$900,000558,000342,000$120,000$100,00073,00027,000$24,00011,00035,000$(8,000)631,000369,000$144,000Common expenses107,000Total expenses251,000Net income (Loss) $118,000Requireda. 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: $ 096,000216,000$126,000

Removing a department could impact net income, either positively or negatively, depending on the…

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 631,000 Gross profit 369,000 Direct expenses $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 96 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 $900,000 558,000 342,000 $120,000 96,000 216,000 $126,000 $100,000 73,000 27,000 $24,000 11,000 35,000 $(8,000)

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 631,000 Gross profit 369,000 Direct expenses $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 96 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 $900,000 558,000 342,000 $120,000 96,000 216,000 $126,000 $100,000 73,000 27,000 $24,000 11,000 35,000 $(8,000)

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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