Judy Jean, a recent graduate of Rolling’s accounting program, evaluated the oper
ID: 2462736 • Letter: J
Question
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. FILL IN THE CHART BELOW. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
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
Huron Division should be continued since it is providing Gain of $16,390 Statement showing computations Particulars Continue Eliminate Net Income Increase (Decrease) Sales 100,990.00 - 100,990.00 Variable costs: Cost of goods sold 59,600.00 - 59,600.00 Operating expenses 25,000.00 - 25,000.00 Total variable 84,600.00 - 84,600.00 Contribution margin 16,390.00 - 16,390.00 Fixed costs Cost of goods sold 16,830.00 16,830.00 - Operating expenses 25,250.00 25,250.00 - Total fixed 42,080.00 42,080.00 - Net income (loss) (25,690.00) (42,080.00) 16,390.00 Note: We are not given FC and VC of other 5 divisions. Thus preparing in this way
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