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A company operates with two departments: Department AA and Department BB. The manager is considering to drop Department BB because of the income statement prepared by the bookkeeper shown below: Dept. AA Dept. BB Sales P3,000,000 P1,000,000 Less: Variable costs 900,000 400,000 Contribution Margin 2,100,000 600,000 Less: Total Fixed costs 1,400,000 800,000 Operating Profit/(loss) P 700,000 (P200,000) Of the total fixed costs, P350,000 allocated to Det. BB is considered ass sunk cost. In, addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur.

A company operates with two departments: Department AA and Department BB. The manager is considering to drop Department BB because of the income statement prepared by the bookkeeper shown below: Dept. AA Dept. BB Sales P3,000,000 P1,000,000 Less: Variable costs 900,000 400,000 Contribution Margin 2,100,000 600,000 Less: Total Fixed costs 1,400,000 800,000 Operating Profit/(loss) P 700,000 (P200,000) Of the total fixed costs, P350,000 allocated to Det. BB is considered ass sunk cost. In, addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur.

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 14EB: Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are...
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14. A company operates with two departments: Department AA and Department BB. The manager is considering to drop Department BB because of the income statement prepared by the bookkeeper shown below: Dept. AA Dept. BB Sales P3,000,000 P1,000,000 Less: Variable costs 900,000 400,000 Contribution Margin 2,100,000 600,000 Less: Total Fixed costs 1,400,000 800,000 Operating Profit/(loss) P 700,000 (P200,000) Of the total fixed costs, P350,000 allocated to Det. BB is considered ass sunk cost. In, addition if Dept. BB will be eliminated 10% decrease of sales in Dept. AA will occur.
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