Managerial Accounting: Departmental Contribution and Elimination

This managerial accounting assignment solution addresses two key problems: departmental contribution to income and the analysis of potential department elimination. The solution meticulously calculates departmental contribution to overhead and net income for Vortex Company, evaluating the feasibility of eliminating Department B based on its financial performance and contribution to overhead. It highlights the impact of indirect expenses and suggests measures to minimize them. The second part analyzes the possible elimination of a department for Eclectic Décor Company, providing a three-column report detailing total, eliminated, and continuing expenses. It forecasts an annual income statement reflecting the department's elimination and reconciles the combined net income with the forecasted net income. The assignment uses financial calculations and analysis to provide a comprehensive understanding of managerial accounting principles, including cost allocation, departmental performance evaluation, and the impact of strategic decisions on financial statements. References from academic journals and textbooks are included.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:
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1MANAGERIAL ACCOUNTING
Table of Contents
Problem 9-2A: Departmental contribution to income................................................................2
Part 1: Departmental contribution to overhead and departmental net income.......................2
Part 2: Evaluation of whether Department B needs to be eliminated....................................3
Problem 10-6A: Analysis of possible elimination of a department...........................................4
Part 1: Three-column report listing the total expenses, eliminated expenses and continuing
expenses of Ecletic Décor Company......................................................................................4
Part 2: Forecasted annual income statement of Ecletic Décor Company reflecting the
elimination of Department 200:.............................................................................................6
Part 3: Reconciliation of the combined net income with the forecasted net income of
Ecletic Décor Company.........................................................................................................7
References:.................................................................................................................................8

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Problem 9-2A: Departmental contribution to income
Part 1: Departmental contribution to overhead and departmental net income
For computing the amount of allocated indirect expenses, the following workings are
carried out:

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Part 2: Evaluation of whether Department B needs to be eliminated
According to the above calculations with special reference to the tables, it could be
observed that the departmental income of Department B of Vortex Company is obtained as
($9,260). Thus, it denotes that this particular department has been suffering loss, which might
reduce the cash base and working capital availability of the organization (Dale & Plunkett,
2017). However, it is noteworthy to mention that the contribution to overhead is $30,000 for
the stated department. This clearly denotes that the indirect expenses have resulted in
negative departmental income for this department of Vortex Company.
Hence, it could be stated that if none of the expenses could be minimized even after
Department B is eliminated, then the elimination might not be feasible for Vortex Company.
This would minimize the total business income by $30,000 as well, which is earned after
deducting direct expenses from the overall revenue (Kotas, 2014).

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Based on the scenario, it could be identified that few indirect expenses could be
eliminated after shutting down the operations of Department B. However, if Vortex Company
could not find ways to reduce at least $30,000 of the indirect expenses, it is advisable to the
organization to continue with the operations of Department B. For eliminating indirect
expenses, it could undertake the following measures:
 Brainstorming sessions could be arranged with the employees to provide
encouragement for innovative ideas through incentives
 Contracts with the third party suppliers could be reviewed to check if such contracts
are still fulfilling the needs of the organization
 The storage space needs to be cleared for eliminating the outdated technology like old
computers, phones and fax machines
 The depreciation expense needs to be minimized for overall cost reduction (Fullerton,
Kennedy & Widener, 2014)

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Problem 10-6A: Analysis of possible elimination of a department
Part 1: Three-column report listing the total expenses, eliminated expenses and
continuing expenses of Ecletic Décor Company
The following workings are carried out in relation to insurance expense,
miscellaneous office expenses and sales salaries for determining their values:

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The closing department would eradicate 70% of the insurance expense along with
25% of the total miscellaneous office expenses. In addition, there would be minimization in
sales salaries to be paid to the two clerks not to be replaced (Nielsen, Mitchell & Nørreklit,
2015). There would be no elimination of office salary; however, there would be
reclassification of the office salary. One-half would be reported in the form of sales salaries
and another half would be reported in the form of office salary.
Part 2: Forecasted annual income statement of Ecletic Décor Company reflecting the
elimination of Department 200:

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The following workings are carried out in relation to reassignment of administrative
salary after eliminating Department 200:
Part 3: Reconciliation of the combined net income with the forecasted net income of
Ecletic Décor Company

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References:
Dale, B. G., & Plunkett, J. J. (2017). Quality costing. Routledge.
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7-8), 414-428.
Kotas, R. (2014). Management accounting for hotels and restaurants. Routledge.
Nielsen, L. B., Mitchell, F., & Nørreklit, H. (2015, March). Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39,
No. 1, pp. 64-82). Elsevier.