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A guitar manufacturer is considering eliminating its electric guitar division because its $76,000 expenses are higher than its $72,000 sales. The company reports the following expenses for this division. Avoidable Expenses Unavoidable Expenses Cost of goods sold$56,000 Direct expenses 9,250 $1,250 Indirect expenses 470 1,600 Service department costs 6,000 1,430 Should the division be eliminated

Respuesta :

Answer:

The electric division should be kept

Explanation:

The computation of given question is shown below:-

Electric guitar division          Kept           Eliminated

Sales                                      $72,000    $0

Expenses

Cost of goods sold              $56,000      0

Direct expenses                   $9,250       $1,250

Indirect expenses                 $470          $1,600

Service department cost      $6,000      $1,430

Total expenses                      $71,720     $4,280

Net income (loss)                    $280         ($4,280)

                                         ($72,000 - $71,720)

Therefore the electric division should be kept

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