Chapter 25, Problem 1CP

CHALLENGE PROBLEM

This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter.

The results of the operating activities of Kobe Company for the current year are as follows:

Based on these results, Kobe is considering discontinuing department C and establishing a new department D. The estimated revenues and expenses of the new department are as follows:

In addition, the proposed change will cause total indirect operating expenses to increase by $22,000.

REQUIRED

Determine whether Kobe should discontinue department C and establish department D.