If Bohol Branch were eliminated, then its traceable fixed expenses could be avoided. The total common fixed expenses are merely allocated and would be unaffected.1. What will be the new company profit (loss) if Bohol Branch is eliminated?2. What will be the decrease in company profit if Bohol Branch is closed and 20% of its traceable fixed expense would remain unchanged while Cebu’s sales would decrease by 20%?SHOW SOLUTIONS FOR EACH REQUIREMENT. PROBLEM 4: CONTINUE or SHUTDOWN (SHUTTING DOWN OPERATION)The combined income statement of Arañas Stores for Bohol and Cebu branches is given below:Bohol BranchCebu BranchTotalSalesLess: Variable expensesContribution marginLess: Traceable fixed expensesSegment marginLess: Common fixed expensesProfit (loss)P 1,200,000(840,000)P 360,000(210,000)P150,000(180,000)(P 30,000)P 800,000(360,000)P 440,000(180,000)P 260,000(120,000)P 140,000P 2,000,000(1,200,000)P 800,000(390,000)P 410,000(300,000)P 110,000

Fixed costs are referred to as cost which is not affected by the level of production or activity and…

Answered: PROBLEM 4: CONTINUE or SHUTDOWN…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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If Bohol Branch were eliminated, then its traceable fixed expenses could be avoided. The total common fixed expenses are merely allocated and would be unaffected.

1. What will be the new company profit (loss) if Bohol Branch is eliminated?

2. What will be the decrease in company profit if Bohol Branch is closed and 20% of its traceable fixed expense would remain unchanged while Cebu’s sales would decrease by 20%?

SHOW SOLUTIONS FOR EACH REQUIREMENT.

PROBLEM 4: CONTINUE or SHUTDOWN (SHUTTING DOWN OPERATION)
The combined income statement of Arañas Stores for Bohol and Cebu branches is given below:
Bohol Branch
Cebu Branch
Total
Sales
Less: Variable expenses
Contribution margin
Less: Traceable fixed expenses
Segment margin
Less: Common fixed expenses
Profit (loss)
P 1,200,000
(840,000)
P 360,000
(210,000)
P150,000
(180,000)
(P 30,000)
P 800,000
(360,000)
P 440,000
(180,000)
P 260,000
(120,000)
P 140,000
P 2,000,000
(1,200,000)
P 800,000
(390,000)
P 410,000
(300,000)
P 110,000

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