Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the ope
ID: 2452267 • Letter: V
Question
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, “our total profits would increase by $26,600.” The Other Five Divisions Percy Division Total Sales $1,665,000 $100,000 $1,765,00... Cost of goods sold 978,500 76,200 1,054,700 Gross profit 686,500 23,800 710,300 Operating expenses 526,300 50,400 576,700 Net income $160,200 $ (26,600 ) $133,600 In the Percy Division, cost of goods sold is $60,300 variable and $15,900 fixed, and operating expenses are $29,900 variable and $20,500 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? (a) Prepare a schedule to support your answer.
Explanation / Answer
Total Net Income if Percy Division is not eliminated = $ 133,600
if Percy Division is eliminated, Fixed Cost would not be eliminated
Total Net Income if Percy Division is eliminated = $ 123800
Total profits would decrease = 133600-123800
Total profits would decrease = $ 9800
No , Veronica is not right about eliminating the Percy Division, if it would eliminate than total profit would decrease by $ 9800
Schedule
Other Five Divisions Percy Division Total Sale 1665000 0 1665000 Cost of Good Sold 978500 15900 994400 Gross Profit 686500 -15900 670600 Operating Expenses 526300 20500 546800 Net Income 160200 -36400 123800Related Questions
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