Dept. A $590,000 365,000 $225,000 127,000 $ 98,000 Dept. C $735,000 $450,000 $1,775,000 267,000 $189,250 $183,000 $ 597,250 209,000 $ (26,000) $ 164,250 20,000 $ (46,000) $ 31,250 Dept. B Total Net sales Cost of goods sold Gross margin Direct operating expenses Direct operating margin Indirect operating expenses Operating income (loss) 545,750 1,177,750 97,000 $ 92,250 52,000 $ 40,250 433,000 61,000 133,000 $ 37,000
The results of the operating activities of Kobe Company for the current year are as follows:
Based on these results, Kobe is considering discontinuing department C and establishing a new department D. The estimated revenues and expenses of the new department are as follows:
Dept. D
Net sales $480,000
Cost of goods sold 270,000
Direct operating expenses 185,000
In addition, the proposed change will cause total indirect operating expenses to increase by $22,000.
Required
Determine whether Kobe should discontinue department C and establish
department D.
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