Ch 7 Acc212 Project

Managerial Accounting - Online
Chapter 7 - Project

Solve both scenarios below:
1.  Mars Corporation has three departments. Condensed income statement data are as follows:
|                                       |Department A               |Department B               |Department C               |Total             |
|Sales                                   |$300,000                   |$280,000                   |$120,000                   |$700,000           |
|Variable Expenses                       |160,000                     |175,000                   |105,000                   |440,000           |
|Contribution Margin                     |140,000                     |105,000                   |15,000                     |260,000           |
|Fixed Expenses                         |65,000                     |35,000                     |40,000                     |140,000           |
|Net Income                             |$75,000                     |$70,000                   |$(25,000)                 |$120,000           |

If Department C is discontinued, fixed expenses would drop $24,000 since the departmental supervisor would leave; the remaining fixed expenses would continue. Sales in Department A would drop 5%; Department B would be unaffected.
Should Department C be discontinued? Explain fully and show your computations. 
The chart below is how Mars Corporation’s income statement data would look if department C were to be discontinued. While this decision would be cutting an unprofitable department, it would result in a loss in net income for a couple of reasons. Firstly, while some of the fixed expenses would be shed, note that Department A and B would still inherit $26,000 collectively from the discontinuance of Department C. That in itself makes up more than the loss in net income that Department C was resulting in to begin with. On top of this, the 5% sales drop in department A would cost the company $15,000 in sales. All things...