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In Partial Requirements for BA 2005/BA 206- Managerial Accounting

Presented to the College of Governance and Business
University of Southeastern Philippines-Obrero Campus
Barrio Obrero, Davao City

Submitted to:
Dr. Rosfe Corlae Badoy, CPA

Submitted by:
Garlitos, Joseph Vincent
Gregaa, Mark Angelo
Tubo, Eric

January 2016

Executive Summary

Import Distributors, Inc. has been a beacon being one of the importers
and distributors of appliances and other equipment to retail appliance stores in
the Rocky Mountain areas. The company, indeed, is compartmentalized in
three product lines, namely: 1)audio equipment (e.g. tuners, tape decks, CD
players, and many more); 2)television equipment (e.g. videotape recorders); and
3)kitchen appliances (e.g. refrigerators, freezers, and stoves). The said three
lines were considered for a one-third of total sales for companys sales revenue.
The management, however, has seen recently the problem that
throughout its operation they did not prepare a departmental income
statement. This was the cause where in early 1994, the organization has
established and implemented such financial statement for the management
group in order not only to show transparency but also to know the performance
of the company in terms of the profit earned (or incurred loss). After preparing
the income statement, the management found out that amidst of the earned
net income which was amounted to 4.3% of sales, there was a net loss of
$64,920 in the television department exceeding its operating expenses over the
gross margin.
Hence, the management made assumptions whether or not to
discontinue the operation of the television department due to poor income
statement based on the first quarter of the year.

Statement of the Problem

-What action should be taken with regards to the television department?


Alternative Solution

Apparently, the researchers critically examine if there is really a need by

management to discontinue the operation of television department. The answer
is NO. As a matter of fact, the researchers have come up a concrete solution
based on the findings and considerations. The analysis of the income
statement shows an over plus of operating expenses versus its gross margin. In
the first quarter, the management applied an incorrect cost management
system that they failed to reduce expenditures over their given budget that
resulted to a net loss. In this way, they have to avoid these operating costs like
delivery cost, personnel expense, rent, sales commissions, and other costs that

need for austerity and critical evaluation. By doing this, they will be able to
reduce unnecessary expenses that will result to an increase gross margin.

Conclusion and Recommendation

In conclusion, discontinuance of the television department in its

operation in IDI is not the best solution. In the first place, the company had
failed to prepare income statements in each division groups and closely
monitor its operational expenses. Moreover, the net loss of the television
department in the first quarter is not the determinant to discontinue the
operation. One quarter or three months does not necessarily represent a whole
year performance in terms of sales revenue in the company. Thus, the company
can still cover the loss in the succeeding months if they have an improved
marketing techniques and when it is on favored season.
The researchers recommend that television department would still be
given a chance to perform more suitably and to continue its operation
throughout the year and be closely monitored its operating expenses and is
highly encouraged also to make actions on how to increase sales and earn more
profit by internally improve not only the said department but in all three
product lines performances. Actions taken would be in marketing and
promotion, cost management which include an annual financial evaluation and
planning as well.