Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include P30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses: Net sales P100,000 Variable manufacturing costs 60,000 Gross profit P 40,000 Fixed expenses (direct and allocated) 50,000 Loss from operations P (10,000) What would be the effect on the firm’s operating income if Division X were discontinued? a. P10,000 increase b. P40,000 decrease c. P100,000 decrease d. P10,000 decrease
Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include P30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses: Net sales P100,000 Variable manufacturing costs 60,000 Gross profit P 40,000 Fixed expenses (direct and allocated) 50,000 Loss from operations P (10,000) What would be the effect on the firm’s operating income if Division X were discontinued? a. P10,000 increase b. P40,000 decrease c. P100,000 decrease d. P10,000 decrease
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer and solution please. Thank you!
Consider the following portion of a segmented income statement for the year just ended. Assume that the
fixed expenses of Division X include P30,000 of direct expenses and that the discontinuance of the department
will not affect the sales of the other departments nor reduce the common expenses:
Net sales P100,000
Variable
Gross profit P 40,000
Fixed expenses (direct and allocated) 50,000
Loss from operations P (10,000)
What would be the effect on the firm’s operating income if Division X were discontinued?
a. P10,000 increase
b. P40,000 decrease
c. P100,000 decrease
d. P10,000 decrease
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