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 Sales $950,000 $800,000 $150,000 Cost of sales 626,000 512,000 114,000 Gross profit $324,000 $288,000 $36,000 Direct expenses $144,000 $120,000 $24,000 Common expenses 125,000 105,000 20,000 Total expenses $269,000 $225,000 $44,000 Net income (Loss) $55,000 $63,000 $(8,000) Required a. Calculate the gross profit percentage for departments 1-3 combined and for department 4. Department 1-3 Answer 1%Department 4 Answer 2% 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: $Answer 3
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 Sales $950,000 $800,000 $150,000 Cost of sales 626,000 512,000 114,000 Gross profit $324,000 $288,000 $36,000 Direct expenses $144,000 $120,000 $24,000 Common expenses 125,000 105,000 20,000 Total expenses $269,000 $225,000 $44,000 Net income (Loss) $55,000 $63,000 $(8,000) Required a. Calculate the gross profit percentage for departments 1-3 combined and for department 4. Department 1-3 Answer 1%Department 4 Answer 2% 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: $Answer 3
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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 | ||
|---|---|---|---|---|
| Sales | $950,000 | $800,000 | $150,000 | |
| Cost of sales | 626,000 | 512,000 | 114,000 | |
| Gross profit | $324,000 | $288,000 | $36,000 | |
| Direct expenses | $144,000 | $120,000 | $24,000 | |
| Common expenses | 125,000 | 105,000 | 20,000 | |
| Total expenses | $269,000 | $225,000 | $44,000 | |
| Net income (Loss) | $55,000 | $63,000 | $(8,000) |
Required
a. Calculate the gross profit percentage for departments 1-3 combined and for department 4.
Department 1-3 Answer 1%
Department 4 Answer 2%
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: $Answer 3
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