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

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 Z of E Company:

E Company
Particulars Total expenses ($) Eliminated expenses ($) Continuing expenses ($)
Cost of goods sold 586,400 125,100 461,300
Direct expenses
Advertising 30,000 3,000 27,000
Store supplies used 7,000 1,400 5,600
Depreciation − Store equipment 21,000 21,000
Allocated expenses
Sales salaries 93,600 33,800 59,800
Rent expenses 27,600 27,600
Bad debts expenses 25,000 4,000 21,000
Office salary 26,000 13,000 13,000
Insurance expenses 5,600 910 4,690
Miscellaneous office expenses 4,200 750 3,450
Total expenses 826,400 181,960 644,440
Table (1)

Hence, total expenses are $826,400, eliminated expenses are $181,960 and continuing expenses are $644,440.

2.

To determine

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

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 700,000
Less: Cost of goods sold 461,300
Gross profit ( A ) 238,700
Operating expenses
Advertising 27,000
Store supplies 5,600
Depreciation-Store equipment 21,000
Total direct expenses ( B ) 53,600
Allocated expenses
Sales salaries 59,800
Rent expenses 27,600
Bad debts expenses 21,000
Office salary 13,000
Insurance expenses 4,690
Miscellaneous office expense 3,450
Total allocated expenses ( C ) 129,540
Total expenses ( D )=( B ) +( C )  183,140
Net income (loss) ( A )( D ) 55,560
Table (2)

Hence, forecasted net income is $55,560.

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 48,600
Savings of total expenses 181,960
Loss of revenue (sales) (175,000)
Forecasted income 55,560
Table (3)

Hence, forecasted income reconcile with combined income at $55,560.

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Chapter 10 Solutions

Managerial Accounting

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