Question

Dropping Unprofitable Department

Penn Corporation has four departments, all of which appear to be profitable except department 4. Operating data for 2019 are as follows:

		Total	Departments 1-3	Department 4
Sales		$1,230,000	$1,050,000	$180,000
Cost of sales		801,900	661,500	140,400
Gross profit		428,100	388,500	39,600
Direct expenses		$177,000	$150,000	$27,000
Common expenses		145,200	122,600	22,600
Total expenses		322,200	272,600	49,600
Net income (Loss)		$105,900	$115,900	$(10,000)

a. Calculate the gross profit percentage for departments 1-3 combined and for department 4.

Department 1-3: Answer%
Department 4: Answer%

b. What effect would elimination of department 4 have had on total firm net income? (Ignore the effect of income tax.)

The firm's net income would be: $Answer

Answer 1