Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 10, Problem 4ATC
To determine
Write a letter to the employees who are affected by restructuring Company MC.
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Making decisions about dropping a product
Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018:
Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $15,000.
Requirements
Prepare a differential analysis to show whether Security Team should drop the industrial systems product line.
Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement l.
What have you learned from this comparison in Requirement 2?
Making decisions about dropping a product
Members of the board of directors or Security Check have received the following operating income data for the year ended May 31, 2018:
Members of my board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease the fixed cost of goods sold by $580,000 and decrease fixed selling and administrative expenses by $12,000.
Requirements
Prepare a differential analysis to show whether Security Check should drop the industrial systems product line.
Prepare contribution margin income statements to show Security Check’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1.
What have you learned from the comparison in…
Elegant Decor Company’s management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company’s departmental income statements show the following.
ELEGANT DECOR COMPANYDepartmental Income StatementsFor Year Ended December 31, 2019
Dept. 100
Dept. 200
Combined
Sales
$
436,000
$
290,000
$
726,000
Cost of goods sold
262,000
207,000
469,000
Gross profit
174,000
83,000
257,000
Operating expenses
Direct expenses
Advertising
17,000
12,000
29,000
Store supplies used
4,000
3,800
7,800
Depreciation—Store equipment
5,000
3,300
8,300
Total direct expenses
26,000
19,100
45,100
Allocated expenses
Sales salaries
65,000
39,000
104,000
Rent expense…
Chapter 10 Solutions
Survey Of Accounting
Ch. 10 - 1. What are some differences between financial and...Ch. 10 - 2. What does the value-added principle mean as it...Ch. 10 - 4. How does product costing used in financial...Ch. 10 - 5. What does the statement costs can be assets or...Ch. 10 - 6. Why are the salaries of production workers...Ch. 10 - 7. How do product costs affect the financial...Ch. 10 - 8. What is an indirect cost? Provide examples of...Ch. 10 - 9. How does a product cost differ from a selling,...Ch. 10 - 10. Why is cost classification important to...Ch. 10 - 11. What is cost allocation? Give an example of a...
Ch. 10 - 13. What are some of the common ethical conflicts...Ch. 10 - 14. What costs should be considered in determining...Ch. 10 - 15. What is a just-in-time (JIT) inventory system?...Ch. 10 - Prob. 14QCh. 10 - Prob. 15QCh. 10 - Prob. 16QCh. 10 - Prob. 17QCh. 10 - Prob. 18QCh. 10 - Prob. 19QCh. 10 - Prob. 1ECh. 10 - Exercise 1-2A Identifying product versus selling,...Ch. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Exercise 1-6A Identifying product versus SGA costs...Ch. 10 - LO 1-3 Exercise 1-7A Recording product versus SGA...Ch. 10 - Prob. 8ECh. 10 - LO 1-4 Exercise 1-9A Upstream, midstream, and...Ch. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Cost of goods manufactured and sold The following...Ch. 10 - Prob. 15ECh. 10 - Exercise 1-14A Using JIT to minimize waste and...Ch. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Problem 1-19A Characteristics of financial versus...Ch. 10 - Prob. 22PCh. 10 - Problem 1-21A Effect of product versus period...Ch. 10 - Problem 1-22A Product versus SGA costs The...Ch. 10 - Prob. 25PCh. 10 - Prob. 26PCh. 10 - Prob. 27PCh. 10 - Prob. 28PCh. 10 - Prob. 29PCh. 10 - Prob. 30PCh. 10 - Prob. 31PCh. 10 - Prob. 32PCh. 10 - Prob. 1ATCCh. 10 - Prob. 2ATCCh. 10 - Prob. 3ATCCh. 10 - Prob. 4ATCCh. 10 - Ethical Dilemma Product cost versus selling and...
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- CHALLENGE PROBLEM This problem challenges you to apply your cumulative accounting knowledge to move a step beyond the material in the chapter. The results of the operating activities of Kobe Company for the current year are as follows: Based on these results, Kobe is considering discontinuing department C and establishing a new department D. The estimated revenues and expenses of the new department are as follows: In addition, the proposed change will cause total indirect operating expenses to increase by 22,000. REQUIRED Determine whether Kobe should discontinue department C and establish department D.arrow_forwardRequired Ethics Mary Branson is the Division Controller and Robert Carson is the Division Vice President of Chandler Manufacturing Company. Due to pressures to meet earnings estimates for 2016, Carson instructs Branson to record as revenue 3,000,000 of orders for computers that are still in production and will not be shipped until January 2017. Required: a. Which of the standards within the IMAs Statement of Ethical Professional Practice should Branson consider in deciding her course of action in this matter? b. What should Branson do if Carson does not acquiesce and still insists that he record the revenue in 2016?arrow_forwardElegant Decor Company’s management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company’s departmental income statements show the following. ELEGANT DECOR COMPANYDepartmental Income StatementsFor Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 444,000 $ 281,000 $ 725,000 Cost of goods sold 261,000 210,000 471,000 Gross profit 183,000 71,000 254,000 Operating expenses Direct expenses Advertising 16,500 13,000 29,500 Store supplies used 5,500 4,900 10,400 Depreciation—Store equipment 4,200 2,800 7,000 Total direct expenses 26,200 20,700 46,900 Allocated expenses Sales salaries 65,000 39,000 104,000 Rent expense…arrow_forward
- Making dropping a product decisions Members of the board of directors of Control One have received the following operating income data for the year ended March 31, 2021: CONTROL ONE Income Statement For the Month Ended March 31, 2021 Product Line Industrial Household Systems Systems Total Sales Revenue $ 330,000 $ 370,000 $ 700,000 Cost of Goods Sold: Variable 33,000 47,000 80,000 Fixed 240,000 69,000 309,000 Total Cost of Goods Sold 273,000 116,000 389,000 Gross Proft 57,000 254,000 311,000 Selling and Administrative Expenses: Variable 64,000 73,000 137,000 Fixed 39,000 27,000 66,000 Total Selling and Administrative E 103,000 100,000 203,000 Operating Income (Loss) $ (46,000) $ 154,000 $ 108,000arrow_forwardElegant Decor Company’s management is trying to decide whether to eliminate Department 200, which has produced losses or low profits for several years. The company’s departmental income statements show the following. ELEGANT DECOR COMPANYDepartmental Income StatementsFor Year Ended December 31, 2019 Dept. 100 Dept. 200 Combined Sales $ 444,000 $ 281,000 $ 725,000 Cost of goods sold 261,000 210,000 471,000 Gross profit 183,000 71,000 254,000 Operating expenses Direct expenses Advertising 16,500 13,000 29,500 Store supplies used 5,500 4,900 10,400 Depreciation—Store equipment 4,200 2,800 7,000 Total direct expenses 26,200 20,700 46,900 Allocated expenses Sales salaries 65,000 39,000 104,000 Rent expense…arrow_forwardManagerial Accounting: An Overview Ethics and the Manager Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodelling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodelled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: 1. According to the IMA’s Statement of Ethical Professional Practice,…arrow_forward
- 7-20 7-27 22 7-27 7-27 7-28 7-29 7-35 7-37 7-38 7-39 8-1 9-1 P7-5 (LO 6), AN Brislin Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $213,000 and the following divisional results. Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations I $250,000 200,000 75,000 $(25,000) Analysis reveals the following percentages of variable costs in each division. Division Cost of goods sold Selling and administrative expenses II III IV $200,000 $500,000 $450,000 192,000 300,000 250,000 60,000 60,000 50,000 $(52,000) $140,000 $150,000 III 80% II I 70% 90% 60 40 50 Discontinuance of any division would save 50% of the fixed costs and expenses for that division. Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued. Instructions a. Compute the contribution margin for Divisions I and II. a.…arrow_forwardMembers of the board of directors of Security Team have received the following operating income data for the year ended May 31, 2018: E (Click the icon to view the operating income data.) Members of the board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $84,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Security Team should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income - X Requirements 1. Prepare a differential analysis to show whether Security Team should drop the industrial systems product line. 2. Prepare contribution margin income statements to show Security Team's total operating…arrow_forwardMembers of the board of directors of Safety Place have received the following operating income data for the year ended May 31, 2018: (Click the icon to view the operating income data.) Members of the board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $80,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Safety Place should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating incomearrow_forward
- Analyze Operational ChangesRichmond's is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives the latest year's operating results: Garden Department All Other Departments Sales $504,000 $3,600,000 Cost of sales 302,400 2,340,000 Gross profit 201,600 1,260,000 Direct expenses 162,000 409,500 Common expenses 72,000 468,000 Total expenses 234,000 877,500 Net income (Loss) $(32,400) $382,500 a. Calculate the gross profit percentage for the garden department and for the other departments as a group. Garden department Answer% All other departments Answer% b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $27,000 per year, and the common expenses of the firm would be reduced by $6,700. What effect would this action have on Richmond's net income? (Ignore income tax in your calculations.)…arrow_forwardQUESTION 4 WT Ltd is a large company that consists of many divisions. The following are scenarios that need to be discussed: Scenario 1: Management decided to combine the packaging department into the retail department. Management created a detailed, formal plan for restructuring and the plan was announced publicly to all the shareholders on 30 September 2022. The company has a year end of 31 December 2022 The following costs will be incurred: Implementation costs R250 000 R 50 000 Future Operating Losses Advertising R 25 000 Discuss with reference to IAS37 whether the restructuring can be recognized as a provision. Indicate the amount at which it can be recognised? Scenario 2: An employee of RT Ltd was injured at work on 15 June 2022 due to faulty equipment, He is suing RT LTD. The lawyers have advised that it is probable that the company will be held liable and the most likely outcome would be R5 000 000. Discuss with reference to IAS37 whether the restructuring can be recognized as…arrow_forwardEsme Company’s management is trying to decide whether to eliminate Department Z, which has produced low profits or losses for several years. The company’s departmental income statements show the following.arrow_forward
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