Question

Suresh Co. expects its five departments to yield the following income for next year.

	Dept. M				Dept. N					Dept. O				Dept. P					Dept. T					Total
Sales		$	82,000			$	44,000				$	78,000			$	65,000				$	43,000			$	312,000
Expenses
Avoidable			17,300				45,400					18,000				21,500					51,300			$	153,500
Unavoidable			57,800				21,600					5,700				54,300					20,300			$	159,700
Total expenses			75,100				67,000					23,700				75,800					71,600				313,200
Net income (loss)		$	6,900			$	(23,000	)			$	54,300			$	(10,800	)			$	(28,600	)		$	(1,200	)

Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios.

(1) Management eliminates departments with expected net losses.

	DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED Dept. M Dept. N Dept. O Dept. P Dept. T Total Sales $0 Expenses: Avoidable 0 Unavoidable 0 Total expenses Net income (loss) $0 $0 $0 $0 $0 $0

(2) Management eliminates departments with sales dollars that are less than avoidable expenses.

	DEPARTMENTS WITH LESS SALES THAN AVOIDABLE EXPENSES ELIMINATED Dept. M Dept. N Dept. O Dept. P Dept. T Total Sales $0 Expenses: Avoidable 0 Unavoidable 0 Total expenses Net income (loss) $0 $0 $0 $0 $0 $0

Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.)

ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income $0 Calculate the total change in net income if Alternative B is adopted. (Cash outflows should be indicated by a minus sign.) ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income $0

Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase?

	Which option should Xinhong choose?

Answer 1

Solution 1:

DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED
	Dept. M	Dept. N	Dept. O	Dept. P	Dept. T	Total
Sales	$82,000.00	$0.00	$78,000.00	$0.00	$0.00	$160,000.00
Expenses:
Avoidable	$17,300.00	$0.00	$18,000.00	$0.00	$0.00	$35,300.00
Unavoidable	$57,800.00	$21,600.00	$5,700.00	$54,300.00	$20,300.00	$159,700.00
Total expenses	$75,100.00	$21,600.00	$23,700.00	$54,300.00	$20,300.00	$195,000.00
Net income (loss)	$6,900.00	-$21,600.00	$54,300.00	-$54,300.00	-$20,300.00	-$35,000.00

Solution 2:

DEPARTMENTS WITH LESS SALES THAN AVOIDABLE EXPENSES ELIMINATED
	Dept. M	Dept. N	Dept. O	Dept. P	Dept. T	Total
Sales	$82,000.00	$0.00	$78,000.00	$65,000.00	$0.00	$225,000.00
Expenses:
Avoidable	$17,300.00	$0.00	$18,000.00	$21,500.00	$0.00	$56,800.00
Unavoidable	$57,800.00	$21,600.00	$5,700.00	$54,300.00	$20,300.00	$159,700.00
Total expenses	$75,100.00	$21,600.00	$23,700.00	$75,800.00	$20,300.00	$216,500.00
Net income (loss)	$6,900.00	-$21,600.00	$54,300.00	-$10,800.00	-$20,300.00	$8,500.00

Note: I have answered all parts related to first question. Other parts are pretaining to different question for which information is not available.