Thomas 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 $962,000 $810,000 $152,000
Cost of sales 640,500 526,500 114,000
Gross profit $321,500 $283,500 $38,000
Direct expenses $144,000 $120,000 $24,000
Common expenses 127,000 106,000 21,000
Total expenses $271,000 $226,000 $45,000
Net income (Loss) $50,500 $57,500 $(7,000)
Required
a. Calculate the gross profit percentage for departments 1-3 combined and for department 4.
Department 1-3 Answer 35%
Department 4 Answer 25%
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
Answers: 3
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