Ellie Ice-cream’s owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analyses for the year just ended: The owner is thinking the elimination of this counter. If it is eliminated then: Depreciation of counter equipment is avoidable The supervisory salaries is avoidable The insurance expense is unavoidable The depreciation of building unavoidable The general overhead is unavoidable Required: a) Should the company eliminate the counter or not? Fill in the table and justify your answer. b) Mention at least three relevant costs.
Ellie Ice-cream’s owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analyses for the year just ended: The owner is thinking the elimination of this counter. If it is eliminated then: Depreciation of counter equipment is avoidable The supervisory salaries is avoidable The insurance expense is unavoidable The depreciation of building unavoidable The general overhead is unavoidable Required: a) Should the company eliminate the counter or not? Fill in the table and justify your answer. b) Mention at least three relevant costs.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ellie Ice-cream’s owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analyses for the year just ended:
The owner is thinking the elimination of this counter. If it is eliminated then:
The supervisory salaries is avoidable
The insurance expense is unavoidable
The depreciation of building unavoidable
The general overhead is unavoidable
Required:
a) Should the company eliminate the counter or not? Fill in the table and justify your answer.
b) Mention at least three relevant costs.
Transcribed Image Text:Eliminate the counter
Keep the counter
500,000
Sales Revenues
Less: Variable expenses
Direct Material
180,000
Direct Labor
120,000
Variable Overhead
Contribution margin
Less: Fixed expenses
Depreciation of counter
equipment
Supervisory salaries
150,000
50,000
10,000
20,000
Insurance
15,000
Depreciation of building
(allocated)
General overhead
8,000
10,000
(allocated)can Colle3.000) the Middle East, !
Net loss
(13,000)
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