Department Z has a gross profit of $30 000, direct departmental expenses of $12 000 and allocated expenses of $21 000 giving it a net loss of $3000. What would be the effect on the total organisation's profit if Department Z were closed?

Question

Quizplus · Accepted Answer

If Department Z were closed, the direct departmental expenses of $12 000 and allocated expenses of $21 000 would be eliminated, thus reducing the total expenses of the organization by $33 000. However, the gross profit of $30 000 generated by Department Z would also be eliminated, resulting in a decrease in profits by $3000 (net loss of Department Z). Therefore, profits would decrease by $18 000 in total.

Department Z Has a Gross Profit of $30 000, Direct