Suresh Co expects its five departments to yield the following income for next year Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales $35,500 $17,100 $33,500 $33,000 $15,400 $134,500
Expenses
Avoidable 4,400 14,200 10,700 8,000 19,900 $57,200
Unavoidable 19,000 7,200 2,700 16,000 4,100 $49,000
Total expenses 23,400 21,400 13,400 24,000 24,000 106,200
Net income (loss) $12,100 $(4,300) $20,100 $,000 $(8,600) $28,300
Recompute and prepare the department income statements including e combined total column for the company under each of the following separate scenarios.
1. Management elimates departments with expected net losses.
DEPARTMENTS WITH EXPECTED NET LOSSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales
Expenses
Avoidable
Unavoidable
Total expenses
Net income (loss)
2. Management eliminates departments with sales dollars that are less than avoidable expenses.

DEPARTMENTS WITH SALES THAN AVOIDABLE EXPENSES ELIMATED
Dept. M. Dept. N Dept. O Dept. P Dept. T Total
Sales
Expenses
Avoidable
Unavoidable
Total expenses
Net income (loss)

Answer and Explanation:

The preparation is presented below

1.

Particulars       Dept. M   Dept N    Dept O   Dept P     Dept T    Total

Sales               $35,500     0        $33,500        0              0       $102,000

Expenses    

Avoidable       $4,400        0       $ 10,700         0            0           $23,100

Unavoidable   $19,000   $7,200 $2,700     $16,000 $4,100      $49,000

Total

expenses       $23,400    $7,200  $13,400  ($16,000)  ($4,100)    $72,100

Net income

(loss)               $12,100     ($7,200) $22,100  ($16,000) ($4,100)  $29,900

As we can see that department N, P and T are suffering from losses so these are closed

2. Department N and T had fewer sales dollars than avoidable costs, and certain units will be dropped. Yet there will always be unavoidable costs to incur.

Particulars       Dept. M   Dept N    Dept O   Dept P     Dept T    Total

Sales               $35,500     0        $33,500    $33,000      0         $102,000

Expenses    

Avoidable       $4,400        0       $ 10,700    $8,000       0           $23,100

Unavoidable   $19,000   $7,200 $2,700     $16,000 $4,100      $49,000

Total

expenses       $23,400    $7,200  $13,400  $24,000  $4,100    $72,100

Net income

(loss)             $12,100     ($7,200) $22,100  $9,000    ($4,100)  $29,900

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