Exercise 21-15 Your answer is partially correct. Try again. Veronica Mars, a rec
ID: 2397812 • Letter: E
Question
Exercise 21-15 Your answer is partially correct. Try again. Veronica Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Dunn Company's six divisions. Veronica made the following presentation to Dunn's board of directors and suggested the Percy Division be eliminated. "If the Percy Division is eliminated," she said, ou total profits would increase by $27,000." The Other Five Divisions Percy Division Total Sales Cost of goods sold Gross profit Operating expenses Net income $1,663,000 $100,300 $1,763,300 978,700 76,800 1,055,500 707,800 578,200 $156,600 (27,000) $129,600 684,300 23,500 527,700 50,500 In the Percy Division, cost of goods sold is $60,000 variable and $16,800 fixed, and operating expenses are $30,800 variable and $19,700 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Explanation / Answer
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Eliminate
Net Income increase (decrease)
A. Sales
100,300
0
-100,300
B. Variable cost
Cost of goods sold
Operating expenses
Total Variable cost
60,000
30,800
90,800
0
0
0
60,000
30,800
90,800
C. Contribution margin (A-B)
9,500
0
-9,500
D. Fixed cost
Cost of goods sold
Operating expenses
Total fixed cost
16,800
19,700
36,500
16,800**
19,700**
36,500**
0
0
0
Net income/(loss) (C-D)
-27,500
-36,500
-9500
**Fixed costs are remain even if the Percy division is eliminated.
Conclusion: The elimination of Percy division will result in net loss of $36,500. That means the elimination will results in increase in loss by $9500. So, veronica’s decision of elimination of Percy division is not right. The company shall continue will the Percy division.
Continue
Eliminate
Net Income increase (decrease)
A. Sales
100,300
0
-100,300
B. Variable cost
Cost of goods sold
Operating expenses
Total Variable cost
60,000
30,800
90,800
0
0
0
60,000
30,800
90,800
C. Contribution margin (A-B)
9,500
0
-9,500
D. Fixed cost
Cost of goods sold
Operating expenses
Total fixed cost
16,800
19,700
36,500
16,800**
19,700**
36,500**
0
0
0
Net income/(loss) (C-D)
-27,500
-36,500
-9500
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