Reference no: EM132529585
Tim Luke, controller for Turn Knob Distributing, has prepared the following financial information for the most recent period showing profitability of its three departments:
Department A Department B Department C
Sales $52,000 $18,000 $20,000
Variable expenses 36,000 10,000 14,000
Contribution Margin 16,000 8,000 6,000
Fixed expenses:
Factory rent 2,000 1,400 3,200
Depreciation 2,000 600 2,600
Utilities 1,800 1,000 1,200
Total fixed expenses 5,800 3,000 7,000
Operating income $10,200 $5,000 ($1,000)
- The factory rent of $3,200 assigned to Department C is avoidable if the department is eliminated. Depreciation will remain unchanged if a department is dropped. Discontinuing Department C will reduce the utilities by $600.
Question 1: Provide an analysis showing whether Department C should be eliminated.