The Vice President of a telecommunications company thinks yhat Department A needs to be eliminated as it is affecting the entire organization. You have been assigned the job of determining if Department A should be eliminated or not and informing the President. The following information has been gathered to assist you in making this decision: (see the picture) The following information is also necessary to assist you in your decision. 1. One of the part-time salaried employees in Department A has been with the company for many years. If Department A is eliminated, she will be transferred to another department with a salary of $4,800 per quarter. All other employees will be laid off. 2. All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate and rent expenses are allocated based on space occupied. 3. If Department A is eliminated, the utilities bill will be reduced by about $11,000 per quarter. 4. If Department A is eliminated, the fixtures in the department will be transferred to the other departments. 5. 35% of the insurance in Department A relates to the fixtures in the department, the remainder relates to the department's merchandise inventory. 6. General office expenses will not change as they relate to the head office. 7. The company has two service departments - purchasing and warehouse. If Department A is eliminated, the company can lay off one full-time and one part-time person from these departments. The combined salaries and other employee costs of these employees are $3,100 per quarter. REQUIRE: a. Assume the company has no alternative use for the space now being occupied by Department A. Prepare a schedule to show whether or not the department should be eliminated. (Assume that eliminating Department A will have not effect on the other department.) b. Assume that the space being occupied by Department A is quite valuable and could be subleased at a rental rate of $35,000 per quarter. Would you advise the company to eliminate Department A and sublease the space? c. What is one qualitative factor that should be considered with this type of decision?

The Vice President of a telecommunications company thinks yhat Department A needs to be eliminated as it is affecting the entire organization. You have been assigned the job of determining if Department A should be eliminated or not and informing the President. The following information has been gathered to assist you in making this decision: (see the picture) The following information is also necessary to assist you in your decision. 1. One of the part-time salaried employees in Department A has been with the company for many years. If Department A is eliminated, she will be transferred to another department with a salary of $4,800 per quarter. All other employees will be laid off. 2. All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate and rent expenses are allocated based on space occupied. 3. If Department A is eliminated, the utilities bill will be reduced by about $11,000 per quarter. 4. If Department A is eliminated, the fixtures in the department will be transferred to the other departments. 5. 35% of the insurance in Department A relates to the fixtures in the department, the remainder relates to the department's merchandise inventory. 6. General office expenses will not change as they relate to the head office. 7. The company has two service departments - purchasing and warehouse. If Department A is eliminated, the company can lay off one full-time and one part-time person from these departments. The combined salaries and other employee costs of these employees are $3,100 per quarter. REQUIRE: a. Assume the company has no alternative use for the space now being occupied by Department A. Prepare a schedule to show whether or not the department should be eliminated. (Assume that eliminating Department A will have not effect on the other department.) b. Assume that the space being occupied by Department A is quite valuable and could be subleased at a rental rate of $35,000 per quarter. Would you advise the company to eliminate Department A and sublease the space? c. What is one qualitative factor that should be considered with this type of decision?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter13: Budgeting And Standard Costs

Section: Chapter Questions

Problem 13.6.2MBA

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The following information is also necessary to assist you in your decision.

1. One of the part-time salaried employees in Department A has been with the company for many years. If Department A is eliminated, she will be transferred to another department with a salary of $4,800 per quarter. All other employees will be laid off.

2. All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate and rent expenses are allocated based on space occupied.

3. If Department A is eliminated, the utilities bill will be reduced by about $11,000 per quarter.

4. If Department A is eliminated, the fixtures in the department will be transferred to the other departments.

5. 35% of the insurance in Department A relates to the fixtures in the department, the remainder relates to the department's merchandise inventory.

6. General office expenses will not change as they relate to the head office.

7. The company has two service departments - purchasing and warehouse. If Department A is eliminated, the company can lay off one full-time and one part-time person from these departments. The combined salaries and other employee costs of these employees are $3,100 per quarter.

REQUIRE:

a. Assume the company has no alternative use for the space now being occupied by Department A. Prepare a schedule to show whether or not the department should be eliminated. (Assume that eliminating Department A will have not effect on the other department.)

b. Assume that the space being occupied by Department A is quite valuable and could be subleased at a rental rate of $35,000 per quarter. Would you advise the company to eliminate Department A and sublease the space?

c. What is one qualitative factor that should be considered with this type of decision?

Income Statement
For the Quarter Ended December 31, 2020
Department
Total
A
B
C
Sales
$1,380,000
$180,000
$720,000
$480,000
less: Variable Costs
833,400
99,000
446,400
288,000
Contribution Margin
$546,600
81,000
273,600
192,000
Less fixed expenses:
Direct advertising
General company
advertising*
71,000
15,000
35,000
21,000
40,000
5,217
20,870
13,913
Salaries
132,000
35,000
55,000
42,000
Rent on building**
81,000
20,250
32,400
28,350
Utilities
37,100
13,000
14,200
9,900
Depreciation of fixtures
40,000
10,800
16,300
12,900
Insurance on inventory and
fixtures
3,700
1,200
1,400
1,100
General office expenses
Service department
54,000
18,000
18,000
18,000
allocations
63,000
21,000
21,000
21,000
Total fixed expenses
521,800
139,467
214,170
168,163
Operating income (loss)
$24,800
($58,467)
$59,430
$23,837
* Allocated based on sales dollars
** Allocated based on space occupied

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