Question Completion:
Management eliminates departments with sales dollars that are less than avoidable expenses.
Answer:
Suresh Co.
Departmental Income Statements
Dept. M Dept. O Dept. P Total
Sales $82,000 $78,000 $65,000 $225,000
Expenses
Avoidable 17,300 18,000 21,500 $56,800
Unavoidable 57,800 5,700 54,300 $159,700
Total expenses 75,100 23,700 75,800 216,500
Net income (loss) $6,900 $54,300 $(10,800) $8,500
Explanation:
a) Data and Calculations:
Dept. M Dept. N Dept. O Dept. P Dept. T Total
Sales $82,000 $44,000 $78,000 $65,000 $43,000 $312,000
Expenses
Avoidable 17,300 45,400 18,000 21,500 51,300 $153,500
Unavoidable 57,800 21,600 5,700 54,300 20,300 $159,700
Total expenses 75,100 67,000 23,700 75,800 71,600 313,200
Net income (loss) $6,900 $(23,000) $54,300 $(10,800)$(28,600)$(1,200)
b) The unavoidable expenses will not change when the two departments have been eliminated. This is why the total unavoidable expenses and the total net income do not tally with the departmental unavoidable and net income sums.
