Daisy Supermarket operates four departments. Management is concerned about the financial results of the dried goods department,
Question:
Daisy Supermarket operates four departments. Management is concerned about the financial results of the dried goods department, which has shown a loss for the past 3 years according to the company’s income statement. Competition in dried goods is exceptionally strong in the area in which the company operates. The departmental income statement for the year ended 30 June 2017 was as follows:
DAISY SUPERMARKET Income Statement for the year ended 30 June 2017 | |||||||||
Dried goods department | All other departments | ||||||||
INCOME Sales Less: Cost of sales | $375 800 280 800 | $1 865 000 1 118 700 | |||||||
GROSS PROFIT Direct expenses Indirect expenses | 95 000 (143 800) (20 500) | 746 300 (292 700) (246 300) | |||||||
PROFIT (LOSS) | $ (69 300) | $ 207 300 | |||||||
If the dried goods department is closed, direct expenses amounting to $13 000 would be shifted to the other three departments. In addition, indirect expenses of $3 700 are unavoidable if the department is eliminated.
Required
A. Calculate the departmental margin for the dried goods department.
B. Should the dried goods department be closed down? Justify your answer.
C. Prepare an income statement for the three remaining departments, assuming the Dried Goods is dropped, to confirm your results in requirement B.
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett