Question

Initial Post

Fictitious information is provided below. This decision is whether to drop or retain a segment of the business.

The Fayetteville Woodpeckers is reviewing two departments within the organization - Special Events Department and the Community Events Department. The company's most recent monthly contribution format income statement regarding these two areas is as provided below.

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

What is the financial advantage (disadvantage) of discontinuing the Community Events Department? See learning object #2 . Be sure to show your work.

	Total		Special Events Department	Community Events Department
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)

Second Post

Please review the discussions of your classmates. In 250 words or less, respond to a classmate on the following points:

• Do you agree or disagree and why with the initial post of your classmate?
• Select one of the 6 key concepts mentioned at the start of the chapter. Explain the concept to another student.

Answer 1

I diagree with the classsmate. By dropping Community Event Department, the operating profit will be reduced by $ 350000. From $500000 to $150000. The reason for the reduction for this reduction are two:

1. 10% reduction is Sales of Special Event Department.

2. Non elimination of common fixed cost of 3,40000 arbitarily allocated to Community Event Department.

   So There is reduction of contribution of Special Event Department.$210,000 and addition of non elimination of common fixed cost of 3,40000. Thus total $550,000 will be lost, resulting the net operating income to $150,000. (700000 - 550000).