FUNDAMENTAL ACCOUNTING PRINCIPLES
FUNDAMENTAL ACCOUNTING PRINCIPLES
24th Edition
ISBN: 9781264044375
Author: Wild
Publisher: McGraw-Hil
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Chapter 25, Problem 6BPSB
To determine

Concept Introduction:

Eliminated expenses-

These are the expenses that would be eliminated with the closure of the department. The example of eliminated expenses include cost of goods sold, advertising, stores supplies, sales salaries, bad debt expenses, insurance expenses, and the miscellaneous office expenses.

Continuing expenses:

These are the expenses that would continue even the closure of any department.

Requirement 1:

We have to determine the three column report.

Expert Solution
Check Mark

Answer to Problem 6BPSB

    Total expenses ($)
    Eliminated expenses($)
    Continuing expenses ($)
    Total expenses$826,400
    $181,960
    $644,440

Explanation of Solution

    Esme DÉCOR COMPANY
    Analysis of expenses under elimination of Department z
    Total expenses ($)
    Eliminated expenses($)
    Continuing expenses ($)
    Cost of goods sold
    $586,400
    $125,100
    $461,300
    Direct expenses
    Advertising
    30,000
    3,000
    27,000
    Store supplies used
    7,000
    1,400
    5,600
    Depreciation of store equip
    21,000
    21,000
    Allocated expenses
    Sales salaries
    93,600
    46,800
    46,800
    Rent expense
    27,600
    27,600
    Bad debts expense
    25,000
    4,000
    21,000
    Office salary
    26,000
    26,000
    Insurance expense
    5,600
    910
    4,690
    Miscellaneous office expenses
    4,200
    750
    3,450
    Total expenses
    $826,400
    $181,960
    $644,440
To determine

Concept Introduction:

Eliminated expenses-

These are the expenses that would be eliminated with the closure of the department. The example of eliminated expenses include cost of goods sold, advertising, stores supplies, sales salaries, bad debt expenses, insurance expenses, and the miscellaneous office expenses.

Continuing expenses:

These are the expenses that would continue even the closure of any department.

Requirement 2:

We have to determine the forecasted annual income statement.

Expert Solution
Check Mark

Answer to Problem 6BPSB

The forecasted annual income is $ 55,560.

Explanation of Solution

    ESME COMPANY
    Forecasted Annual Income Statement
    Under Plan to Eliminate Department Z
    Sales
    $700,000
    Cost of goods sold
    461,300
    Gross profit from sales
    238,700
    Operating expenses
    Advertising
    27,000
    Store supplies used
    5,600
    Depreciation of store equipment
    21,000
    Sales salaries
    59,800
    Rent expense
    27,600
    Bad debts expense
    21,000
    Office salary
    13,000
    Insurance expense
    4,690
    Miscellaneous office expenses
    3,450
    Total operating expenses
    183,140
    Net income
    $ 55,560
To determine

Concept Introduction:

Eliminated expenses-

These are the expenses that would be eliminated with the closure of the department. The example of eliminated expenses include cost of goods sold, advertising, stores supplies, sales salaries, bad debt expenses, insurance expenses, and the miscellaneous office expenses.

Continuing expenses:

These are the expenses that would continue even the closure of any department.

Requirement 3:

We have to determine the reconciliation statement and its analysis.

Expert Solution
Check Mark

Answer to Problem 6BPSB

Department Z's avoidable expenses of $181,960 are $6,960 greater than its revenues of $175,000. This means the company's annual net income would be $6,960 higher from eliminating Department Z. This analysis suggests management should probably go ahead with the elimination of the department as planned

Explanation of Solution

    ESME COMPANY
    Reconciliation of Combined Income with Forecasted Income
    Combined net income
    $ 48,600
    Less Dept. Z's lost sales
    (175,000)
    Plus Dept. Z's eliminated expenses
    181,960
    Forecasted net income
    $ 55,560

Department Z's avoidable expenses of $181,960 are $6,960 greater than its revenues of $175,000. This means the company's annual net income would be $6,960 higher from eliminating Department Z. This analysis suggests management should probably go ahead with the elimination of the department as planned

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Chapter 25 Solutions

FUNDAMENTAL ACCOUNTING PRINCIPLES

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