ACCTG322 Lecture Notes - Deutsche Luft Hansa, Filigree, Sunk Costs

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violetchinchilla775

8 Apr 2014

School

University of Alberta

Department

Accounting

Course

ACCTG322

Professor

Trish Stringer

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Document Summary

In class #12. 1 dropping or retaining a segment. Contribution margin lost if the bath department is dropped: Lost from the kitchen department (10% ,400,000) Less avoidable fixed costs (,000 ,000) In class #12. 2 make or buy a component. Difference in favour of continuing to make the parts 1 only the supervisory salaries can be avoided if the parts are purchased. The remaining book value of the special equipment is a sunk cost; hence, the per unit depreciation expense is not relevant to this decision. Based on these data, the company should reject the offer and should continue to produce the parts internally. Suppose that if the thermostats were purchased, climate-control, inc. , could use the freed capacity to launch a new product. The segment margin of the new product would be ,000 per year. Opportunity cost segment margin forgone on a potential new product line Difference in favour of purchasing from the outside.

Related Questions

EXERCISE 12-17 Dropping or Retaining a Segment [L012-2] Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Hardware Linens Total Sales ......... Variable expenses ......... Contribution margin Fixed expenses Net operating income (loss) ........ ........... .. $4,000,000 1,300,000 2,700,000 2,200,000 $ 500,000 $3,000,000 900,000 2,100,000 1,400,000 $ 700,000 $1,000,000 400,000 600,000 800,000 $ 200,000 A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allo- cated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 10% decrease in the sales of the Hardware Department. Required: If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

Exercise 10-17 Dropping or Retaining a Segment [LO10-2]

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companyâs most recent monthly contribution format income statement follows:

Department

Total Hardware Linens
Sales $ 4,000,000 $ 3,000,000 $ 1,000,000
Variable expenses 1,300,000 900,000 400,000

Contribution margin 2,700,000 2,100,000 600,000
Fixed expenses 2,200,000 1,400,000 800,000

Net operating income (loss) $ 500,000 $ 700,000 $ (200,000)

A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 10% decrease in the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?

viridianzebra706

PROBLEM 12-19 Dropping or Retaining a Segment [L012-2] Jackson County Senior Services is a nonprofit organization devoted to providing essential ser- vices to seniors who live in their own homes within the Jackson County area. Three services are provided for seniors-home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow: Home Nursing Meals On Wheels House- keeping Total $900,000 490,000 410,000 $260,000 120.000 140,000 $400,000 210,000 190,000 $240,000 160,000 80,000 Revenues ..... Variable expenses ............ Contribution margin ..... Fixed expenses: Depreciation ..... Liability insurance....... .. Program administrators' salaries ... General administrative overhead" ...... Total fixed expenses ........ ...... Net operating income (loss) ............. "Allocated on the basis of program revenues. 68,000 42,000 115,000 180.000 8,000 20,000 40.000 52.000 40,000 7,000 38,000 80,000 165,000 $ 25,000 20.000 15,000 37,000 48,000 120,000 $140,000 405,000 $ 5,000 120,000 $ 20,000 The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization's finances and considers the net operating income of $5,000 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are represen- tative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps discontinuing the housekeeping program. The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. Required: 1. Should the Housekeeping program be discontinued? Explain. Show computations to support your answer. 2. Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services.

ACCTG322 Lecture Notes - Deutsche Luft Hansa, Filigree, Sunk Costs

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