Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Chapter 1, Problem 30E
To determine
Identify the revenues and costs which are probably differential for the decision to discontinue the City Division’s operations. Explain the effect on Company B’s profits if the division is eliminated. Also, identify is there any other information required before recommending whether or not to close the City Division or not.
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Manuel Inc. produces textiles in many different forms. After recording lower than anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on the two divisions being considered for closing and has asked you to evaluate the short-term and long-term effects on profits of closing each division.
Which division should be closed if Manuel is most concerned with increasing long-run profits?
Winter Outerwear
High-End Suits
Net revenues
$
1,200,000
$
5,200,000
Variable costs
660,000
2,160,000
Contribution margin
540,000
3,040,000
Controllable fixed costs
0
2,020,000
Controllable margin
540,000
1,020,000
Noncontrollable fixed costs
770,000
1,540,000
Contribution by division
$
(230,000
)
$
(520,000
)
multiple choice
Winter Outerwear
High-End Suits
Closing either would have the same…
Swain Athletic Gear (SAG) operates six retall outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the
others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the
Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent Income statement for the Cornwall
store follows.
SWAIN ATHLETIC GEAR
Cornwall Street Store Income Statement
For the Year Ending February 28
Sales revenue
Costs
Cost of goods sold
Advertising
Store administrative salaries
Sales commissions
Leases and utilities
Allocated corporate support
Total costs
Net loss before tax benefit
Tax benefit at 25%
Net loss
The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is closed, neither total
corporate support costs nor operations or costs of the other stores are expected to change.
Required:
a. Using the worksheet below,…
Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in the center of the city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability of the Cornwall store and believes that outlet has been a drag on profits in recent years. The most recent income statement for the Cornwall store follows.
SWAIN ATHLETIC GEAR
Cornwall Street Store Income Statement
For the Year Ending February 28
Sales revenue
$ 12,300,000
Costs
Cost of goods sold
$ 5,289,000
Advertising
1,421,000
Store administrative salaries
975,000
Sales commissions
1,056,000
Leases and utilities
2,100,000
Allocated corporate support
1,622,000
Total costs
$ 12,463,000
Net loss before tax benefit
$ (163,000)
Tax benefit at 25%
(40,750)
Net loss
$ (122,250)
The CFO at SAG has asked for your advice on closing the Cornwall Street store. If the Cornwall Street store is…
Chapter 1 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 1 - Explain why it is important to consider the...Ch. 1 - Explain the differences between financial...Ch. 1 - Place the letter of the appropriate accounting...Ch. 1 - Distinguish among the value chain, the supply...Ch. 1 - Who are the customers of cost accounting?Ch. 1 - How can cost accounting information together with...Ch. 1 - Prob. 7RQCh. 1 - Does the passage of Sarbanes-Oxley mean that codes...Ch. 1 - Prob. 9CADQCh. 1 - Prob. 10CADQ
Ch. 1 - Prob. 11CADQCh. 1 - Its not the job of accounting to determine...Ch. 1 - Prob. 13CADQCh. 1 - How would cost accounting information help...Ch. 1 - Airlines are well known for using complex pricing...Ch. 1 - Hostess Brands makes a variety of baked goods just...Ch. 1 - What potential conflicts might arise between...Ch. 1 - Refer to the Business Application discussion of...Ch. 1 - Prob. 19CADQCh. 1 - Why does a cost accountant need to be familiar...Ch. 1 - Will studying cost accounting increase the chances...Ch. 1 - Prob. 22CADQCh. 1 - Value Chain and Classification of Costs Apple...Ch. 1 - Pfizer Inc., a pharmaceutical firm, incurs many...Ch. 1 - Tesla, Inc., incurs many types of costs in its...Ch. 1 - Prob. 26ECh. 1 - Accounting Systems McDonalds is a major company in...Ch. 1 - Accounting Systems Ford Motor Company manufactures...Ch. 1 - Cost Data for Managerial Purposes As an analyst at...Ch. 1 - Prob. 30ECh. 1 - Prob. 31ECh. 1 - Refer to the information in Exercise 1-31. The...Ch. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Trends in Cost Accounting Required For each cost...Ch. 1 - Prob. 35ECh. 1 - Prob. 36ECh. 1 - Refer to the information in Exercise 1-32. Jon...Ch. 1 - Prob. 38PCh. 1 - Cost Data for Managerial Purposes Imperial Devices...Ch. 1 - Cost Data for Managerial Purposes You have been...Ch. 1 - Prob. 41PCh. 1 - Cost Data for Managerial Purposes Campus Package...Ch. 1 - Cost Data for Managerial Purposes KC Services...Ch. 1 - Cost Data for Managerial Purposes B-You is a...Ch. 1 - Cost Data for Managerial Purposes Toms Tax...Ch. 1 - Gilman’s Café is a popular restaurant in a local...Ch. 1 - Prob. 47PCh. 1 - Prob. 48PCh. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Cost Data for Managerial PurposesFinding Unknowns...Ch. 1 - Prob. 51PCh. 1 - Prob. 52PCh. 1 - Prob. 53ICCh. 1 - Miller Cereals is a small milling company that...Ch. 1 - Before Miller Cereals can introduce the new...Ch. 1 - The following story is true except that all names...
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