Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter 10, Problem 6PSA

1.

To determine

To prepare: Three column report for total expenses, eliminated expenses and continuing expenses.

1.

Expert Solution
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Explanation of Solution

Given below is the three column report for analysis of expenses under elimination of department 200 of E Company:

E Company
Particulars Total expenses ($) Eliminated expenses ($) Continuing expenses ($)
Cost of goods sold 469,000 207,000 262,000
Direct expenses
Advertising 29,000 12,000 17,000
Store supplies used 7,800 3,800 4,000
Depreciation − Store equipment 8,300 8,300
Allocated expenses
Sales salaries 104,000 52,000 52,000
Rent expenses 14,160 14,160
Bad debts expenses 18,000 8,100 9,900
Office salary 31,200 - 31,200
Insurance expenses 3,100 770 2,330
Miscellaneous office expenses 4,000 400 3,600
Total expenses 688,560 284,070 404,490
Table (1)

Hence, total expenses are $688,560, eliminated expenses are $284,070 and continuing expenses are $404,490.

2.

To determine

To prepare: Forecasted annual income statement under plan to eliminate department 200.

2.

Expert Solution
Check Mark

Explanation of Solution

Given below is the forecasted annual income statement of E Company:

Annual income statement
Particulars Amount ($)
Sales 436,000
Less: Cost of goods sold 262,000
Gross profit ( A ) 174,000
Operating expenses
Advertising 17,000
Store supplies 4,000
Depreciation-Store equipment 8,300
Total direct expenses ( B ) 29,300
Allocated expenses
Sales salaries 67,600
Rent expenses 14,160
Bad debts expenses 9,900
Office salary 15,600
Insurance expenses 2,330
Miscellaneous office expense 3,600
Total allocated expenses ( C ) 113,190
Total expenses ( D )=( B ) +( C )  142,490
Net income (loss) ( A )( D ) 31,510
Table (2)

Hence, forecasted net income is $31,510.

3.

To determine

To prepare: Reconciliation statement of combined income with forecasted income.

3.

Expert Solution
Check Mark

Explanation of Solution

Given below is the reconciliation statement of combined income with forecasted income of E Company:

Reconciliation statement
Particulars Amount ($)
Combined net income 37,440
Savings of total expenses 284,070
Loss of revenue (sales) (290,000)
Forecasted income 31,510
Table (3)

Hence, forecasted income reconcile with combined income at $31,510.

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Chapter 10 Solutions

Managerial Accounting

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