question archive Anderson Document Services, a document creation and copying company, has two departments, Design and Copying
Anderson Document Services, a document creation and copying company, has two departments, Design and Copying
Subject:AccountingPrice: Bought3
Anderson Document Services, a document creation and copying company, has two departments, Design and Copying. The company's most recent monthly contribution format income statement follows:
Department TotalDesignCopying Sales$255,000 $70,000 $185,000 Variable expenses 156,500 45,500 111,000 Contribution margin 98,500 24,500 74,000 Fixed expenses 45,920 28,700 17,220 Operating income (loss)$52,580 $(4,200)$56,780
A study indicates that $12,900 of the fixed expenses being charged to the Design Department are sunk costs or allocated costs that will continue even if the Design Department is dropped. In addition, the elimination of the Design Department would result in a 5% decrease in the sales of the Copying Department.
Required:a.If the Design Department is dropped, what will be the effect on the operating income of the company as a whole?
b.Should the Design department be dropped? Yes
