Exercise 20-15 Judy Jean, a recent graduate of Rolling’s accounting program, eva
ID: 2462241 • Letter: E
Question
Exercise 20-15
Judy Jean, a recent graduate of Rolling’s accounting program, evaluated the operating performance of Artie Company’s six divisions. Judy made the following presentation to Artie’s board of directors and suggested the Huron Division be eliminated. “If the Huron Division is eliminated,” she said, “our total profits would increase by $25,690.”
In the Huron Division, cost of goods sold is $59,600 variable and $16,830 fixed, and operating expenses are $25,000 variable and $25,250 fixed. None of the Huron Division’s fixed costs will be eliminated if the division is discontinued.
Prepare an incremental analysis. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Is Judy right about eliminating the Huron Division?
Five Divisions Huron
Division Total Sales $1,663,740 $100,990 $1,764,730 Cost of goods sold 978,970 76,430 1,055,400 Gross profit 684,770 24,560 709,330 Operating expenses 528,230 50,250 578,480 Net income $ 156,540 $ (25,690) $ 130,850
Explanation / Answer
Continue Eliminate Net Income Increase (Decrease) Sales 1,764,730 1,663,740 100,990 Variable costs Cost of goods sold 1,055,400 995,800 59,600 Gross Profit 709,330 684,770 24,560 Fixed costs Operating expenses 578,480 553,480 25,000 Net income (loss) 130,850 131,290 (440) Judy is incorrect
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