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Required: Is the president correct? Prepare an analysis to indicate what the results would be if Department 3 were eliminated.

Required: Is the president correct? Prepare an analysis to indicate what the results would be if Department 3 were eliminated.

FINANCIAL ACCOUNTING
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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Required: Is the president correct? Prepare an analysis to indicate what the results would be if Department 3 were eliminated.
Transcribed Image Text:Required: Is the president correct? Prepare an analysis to indicate what the results would be if Department 3 were eliminated.
Exercise 1 (Evaluation of a Profit SBU) The president of J. Hermosa Appliance Company notes that Department 3 has been operating at a loss. The president reasons that profits will be increased by P9,000 by elimination of this department in as much as costs of this department are in excess of revenue by this amount. Department 2 1 3 4 Total Revenue Direct labor cost of Р132,000 P168,000 P125,000 P98,000 P523.000 department Allocated company costs Total costs 82.000 30,000 P112,000 P_20,000 108,000 36,000 P144,000 P 24,000 104,000 30,000 P134,000 P_(9,000) 61,000 25,000 P86.000 P12,000 355,000 121,000 P476,000 P 47,000 Net income (loss)
Transcribed Image Text:Exercise 1 (Evaluation of a Profit SBU) The president of J. Hermosa Appliance Company notes that Department 3 has been operating at a loss. The president reasons that profits will be increased by P9,000 by elimination of this department in as much as costs of this department are in excess of revenue by this amount. Department 2 1 3 4 Total Revenue Direct labor cost of Р132,000 P168,000 P125,000 P98,000 P523.000 department Allocated company costs Total costs 82.000 30,000 P112,000 P_20,000 108,000 36,000 P144,000 P 24,000 104,000 30,000 P134,000 P_(9,000) 61,000 25,000 P86.000 P12,000 355,000 121,000 P476,000 P 47,000 Net income (loss)
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