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Firefox File Edit View History Bookmarks Tools Window Help x | + s Media And Videos-Jeffree St- M chapter 23 Pre Assignment E., eziomheducationcorn hm.tpx value: 1.00 points A guitar manufacturer is considering elminating its electric guitar division because its $94,240 expenses are higher than its $87,890 sales. The company reports the following expenses for this division Avoidable Expenses Unavoidable Expenses Cost of goods sold Direct expenses Indirect expenses Service department costs $63,500 11,750 560 11,800 $1,850 2,050 2,730 Should the division be eliminated? Electric Guitar Division is: Sales Expenses: Kept Elimi S 87,890 63,500 13,600 2,610 4,530 94,240 Cost of goods sold Direct expenses 1,850 2,050 2,730 6,630 $ (6,350) $ (6,630) Indirect expenses Service department costs Total expenses Net income (loss) Revenues from electric guitar division Avoidable expenses Revenues are greater than (less than) avoidable expenses by The electric guitar division should be:KeptExplanation / Answer
1. The electric guitar division should be kept because of its profit of $280
The profit is calculated as follows:
(if guitar division is kept)
Note: The unavoidable expenses are not considered as it will continue to occur whether the division is continued or closed.Only avoidable expenses should be considered in calculating the profit for the division.
If the division is closed unavoidable expenses of $6630 will continue to incurr.
If division is not closed the unavoidable expenses will be reduced by $280.
2.Calculation of incremental income of Rory company:
The old machine should be replaced.
Particulars Amount($) Sales 87890 Cost of goods sold (63500) Direct expenses (11750) Indirect expenses (560) Service department costs (11800) Profit 280Related Questions
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