Dropping Unprofitable DepartmentThomas Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows: TotalDepartments 1-3Department 4Sales $962,000$810,000$152,000Cost of sales 640,500526,500114,000Gross profit $321,500$283,500$38,000Direct expenses $144,000$120,000$24,000Common expenses 127,000106,00021,000Total expenses $271,000$226,000$45,000Net income (Loss) $50,500$57,500$(7,000)Requireda. Calculate the gross profit percentage for departments 1-3 combined and for department 4.Department 1-3 Answer%Department 4 Answer%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

Given Information: Operating data of 4 department is provided Required a. Calculate the gross…

Answered: Required a. Calculate the gross profit…

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 2019 are as follows:

	Total	Departments 1-3	Department 4
Sales	$962,000	$810,000	$152,000
Cost of sales	640,500	526,500	114,000
Gross profit	$321,500	$283,500	$38,000
Direct expenses	$144,000	$120,000	$24,000
Common expenses	127,000	106,000	21,000
Total expenses	$271,000	$226,000	$45,000
Net income (Loss)	$50,500	$57,500	$(7,000)

Required

a. Calculate the gross profit percentage for departments 1-3 combined and for department 4.

Department 1-3 Answer%
Department 4 Answer%

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

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