Required: Is the president correct? Prepare an analysis to indicate what theresults 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 hasbeen operating at a loss. The president reasons that profits will be increasedby P9,000 by elimination of this department in as much as costs of thisdepartment are in excess of revenue by this amount.Department2134TotalRevenueDirect labor cost ofР132,000P168,000P125,000P98,000P523.000departmentAllocated company costsTotal costs82.00030,000P112,000P_20,000108,00036,000P144,000P 24,000104,00030,000P134,000P_(9,000)61,00025,000P86.000P12,000355,000121,000P476,000P 47,000Net income (loss)

Revenue is the inflow of cash due from sales or from any other sources. Main source of revenue of a…

Answered: Required: Is the president correct?…

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

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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Question

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)

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