CASE 26-1 Import Industries

Following conclusions can be derived by revising the income statement and taking into account the above mentioned notes:

It is not advisable to discontinue the television department on the basis of the income statement produced for the first quarter of the year. The operating expenses can be reduced to such a level that the gross margin will be large enough to cover them.

As the income statement for other departments is not shown, so exact and detailed corrective measures can not be stated. However, it can be assumed that the operating expenses will surely decrease when the expenses related to other lines are lessened from them. It will show the fair share of the load carried by the department.

Also, the production of the television line can be increased in long term to increase the gross margin, as the first quarter of the year is not representative enough of longer-term results. Taking all these points in regard, it is advised to the management not to

discontinue the television line, but to increase the production and properly allocate the operating expenses among all the three departments. References

Anthony, R.N., Hawkins, D.F., & Merchant, K.A. (2007). Accounting text and cases (12th ed.). New York, NY: McGraw-Hill Companies.