Judy Herzog, a recent graduate of Rolling\'s accounting program, evaluated the o
ID: 2384957 • Letter: J
Question
Judy Herzog, a recent graduate of Rolling's accounting program, evaluated the operating performance of Klumpe Company's six divisions. Judy made the following presentation to Klumpe Board of Directors and suggested the Ketchum Division be eliminated. "If the Ketchum Division is eliminated," she said, "our total profits would increase by $16,870". The Other Five Divisions Ketchum Division Total Sales $1,664,200 $98,200 $1,762,400 Cost of goods sold 978,520 76,470 1,054,990 Gross profit 685,680 21,730 707,410 Operating expenses 527,940 38,600 566,540 Net income $157,740 $(16,870) $140,870 In the Ketchum Division, cost of goods sold is $56,000 variable and $20,470 fixed, and operating expenses are $12,000 variable and $26,600 fixed. None of the Ketchum Division's fixed costs will be eliminated if the division is discontinued. Instructions Is Judy right about eliminating the Ketchum Division? Complete the following incremental analysis to support your answer. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number eg -45 or parentheses eg (45). If a net loss, record amount using either a negative sign preceding the number eg -45 or parentheses eg (45).)Explanation / Answer
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Eliminate
Net Income
Increase
(Decrease
Sales
$98,200
0
98,200
Cost of goods sold
56,000
0
56,000
Operating expenses
12,000
0
12,000
Total variable
68,000
0
68,000
Contribution margin
30,200
0
30,200
Cost of goods sold
20,470
20,470
0
Operating expenses
26,600
26,600
0
Total
47,070
47,070
0
Net income loss
($16,870)
($47,070)
($30,200)
Judy------incorrect
As the net income will be $30,200 less ------------------if the Ketchum Division is eliminated.
Continue
Eliminate
Net Income
Increase
(Decrease
Sales
$98,200
0
98,200
Cost of goods sold
56,000
0
56,000
Operating expenses
12,000
0
12,000
Total variable
68,000
0
68,000
Contribution margin
30,200
0
30,200
Cost of goods sold
20,470
20,470
0
Operating expenses
26,600
26,600
0
Total
47,070
47,070
0
Net income loss
($16,870)
($47,070)
($30,200)
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