NEXT Exercise 7-15 Veronica Mars, a recent graduate of Bell\'s accounting progra

Question

NEXT Exercise 7-15 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 Percy Five Divisions Division Total Sales Cost of goods sold Gross profit Operating expenses Net income $1,665,000 $100,000 $1,765,000 978,50076,200 1,054,700 686,500 23,800 710,300 526,300 50,400 576,700 $160,200 6,600 $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? 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

Continue Eliminate Net Income Increase/ Decrease Sales 100000 0 -100000 Variable cost: Cost of Goods sold 60300 0 60,300 Operating expense 29900 0 29,900 Total variable cost 90200 0 90,200 Contribution margin 9800 0 -9,800 Fixed cost: Cost of Goods sold 15900 15,900 0 Operating expense 20000 20,000 0 Total fixed cost 35900 35,900 0 Net income/(loss) -26100 -35,900 -9,800 Veronica is WRONG As the net loss will decrease by $9800

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