The Furniture Company currently has three divisions: Maple, Oak, and Cherry. The oak furniture line does not seem to be doing well and the president of the company is considering dropping this line. If it is dropped, the revenues associated with the Oak Division will be lost and the related variable costs saved. Also, all of the fixed costs presented under the oak furniture line would be eliminated. The income statements, by divisions, are as follows. Maple Oak Cherry Sales P55,000 P85,000 P100,000 Variable Costs 40,000 72,000 82,000 Contribution Margin 15,000 13,000 18,000 Fixed costs 10,000 14,000 10,200 Oper. profit(loss) P 5,000 P(1,000) P 7,800 Which one of the following options should be recommended to the president of the company? Answers: a. Continue operating the Oak Division as discontinuance would result in a P13,000 decline in operating profits. b. Discontinue the Oak Division which would result in a P7,000 increase in operating profits. c. Continue operating the Oak Division as discontinuance would result in a P6,000 decline in operating profits. d. Continue operating the Oak Division as discontinuance would result in a total operating loss of P1,200.

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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The Furniture Company currently has three divisions: Maple, Oak, and Cherry. The oak furniture line does not seem to be doing well and the president of the company is considering dropping this line. If it is dropped, the revenues associated with the Oak Division will be lost and the related variable costs saved. Also, all of the fixed costs presented under the oak furniture line would be eliminated. The income statements, by divisions, are as follows.

Maple         Oak Cherry
Sales P55,000       P85,000     P100,000
Variable Costs 40,000        72,000 82,000
Contribution Margin 15,000        13,000 18,000
Fixed costs 10,000        14,000       10,200
Oper. profit(loss) P 5,000       P(1,000) P 7,800

Which one of the following options should be recommended to the president of the company?

Answers:	a. Continue operating the Oak Division as discontinuance would result in a P13,000 decline in operating profits.
	b. Discontinue the Oak Division which would result in a P7,000 increase in operating profits.
	c. Continue operating the Oak Division as discontinuance would result in a P6,000 decline in operating profits.
	d. Continue operating the Oak Division as discontinuance would result in a total operating loss of P1,200.
	e. Discontinue the Oak Division which would result in a P1,000 increase in operating profits.

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