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Chapter 13 Homework

# Chapter 13 Homework - Accounting 225 Managerial Accounting...

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Acc ! nting 225 M. Novack Accounting 225 Managerial Accounting Fall 2008 Michael Novack Homework Chapter 13

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Acc ! nting 225 M. Novack Exercise 13-2 1. No, the housekeeping program should not be discontinued. It is actually generating a positive program segment margin and is, of course, providing a valuable service to seniors. Computations to support this conclusion follow: Contribution margin lost if the housekeeping .......................................... program is dropped (\$80000) Fixed costs that can be avoided: ............................................. Liability insurance \$15000 ........................... Program administrator’s salary 37000 52000 Decrease in net operating income for the ..................................... organization as a whole (\$28000) Depreciation on the van is a sunk cost and the van has no salvage value since it would be donated to another organization. The general administrative overhead is allocated and none of it would be avoided if the program were dropped; thus it is not relevant to the decision. Current Total Total If House- keeping Is Dropped Difference: Net Operating Income Increase or (Decrease) .................................... Revenues \$900000 \$660000 (\$240000) ........................ Variable expenses 490000 330000 160000 ..................... Contribution margin 410000 330000 (80000) Fixed expenses: ............................ Depreciation* 68000 68000 0 ...................... Liability insurance 42000 27000 15000 . Program administrators’ salaries 115000 78000 37000 General administrative overhead 180000 180000 0 ..................... Total fixed expenses 405000 353000 52000 .......... Net operating income (loss) \$5000 (\$23000) (\$28000) Continued
Acc ! nting 225 M. Novack Exercise 13-2 2. To give the administrator of the entire organization a clearer picture of the financial viability of each of the organization’s programs, the general administrative overhead should not be allocated. It is a common cost that should be deducted from the total program segment margin.

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Chapter 13 Homework - Accounting 225 Managerial Accounting...

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