Spilker Linens Store has three departments Bath Kitchen and Bedding The most

Question

Spilker Linens Store has three departments: Bath, Kitchen, and Bedding. The most recent income statement, showing the total operating profit and departmental results is shown below:

	Total	Bath	Kitchen	Bedding
Sales	$2,100,000	$1,000,000	$600,000	$500,000
Cost of goods sold	(1,260,000)	(500,000)	(400,000)	(360,000)
Gross profit	840,000	500,000	200,000	140,000
Direct expenses	(420,000)	(200,000)	(100,000)	(120,000)
Allocated expenses	(350,000)	(100,000)	(75,000)	(175,000)
Net income (loss)	$ 70,000	$ 200,000	$ 25,000	$(155,000)

Based on this income statement, management is planning on eliminating the Bedding department, as it is generating a net loss. If the Bedding department is eliminated, the Kitchen department will expand to fill the space, but sales will not change in total, nor will direct expenses. None of Bedding's allocated expenses will be avoided, but they will be reallocated to Bath and Kitchen. Bath will be allocated $100,000 additional expenses, and Kitchen will be allocated $75,000 additional expenses. Prepare a new income statement for Spilker Linens Store, showing the results if the Bedding Department is eliminated and indicate whether eliminating the department is advisable.

Answer

This answer is hidden. It contains 355 characters.

Subjects

Question

Answer

Related questions

Subjects