Veronica Mars, a recent graduate of Bell\'s accounting program, evaluated the op

Question

Veronica Mars, a recent graduate of Bell's accounting program, evaluated the operating perform 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 $24,900. ance of Dunn Company's six divisions. Veronica The Other Percy Five Divisions Division Total Sales Cost of goods sold Gross profit Operating expenses Net income 1,665,000 $100,900 $1,765,900 977,500 76,100 1,053,600 712,300 527,500 49,700577,200 $160,000(24,900) $135,100 687,500 24,800 In the Percy Division, cost of goods sold is $60,400 variable and $15,700 fixed, and operating expenses are $29,100 variable and $20,600 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).) Net Income Increase Eliminate Sales Variable costs Cost of goods sold Operating expenses Total variable Contribution margin Fixed costs

Explanation / Answer

Net loss from eliminating the division = 11,400

Veronica is Incorrect

Continue Eliminate Net Income Increase (Decrease) Sales 100,900 0 (100,900) Variable costs : Cost of goods sold 60,400 0 60,400 Operating expenses 29,100 0 29,100 Total variable 89,500 0 89,500 Contribution margin 11,400 (11,400) Fixed costs : Cost of goods sold 15,700 15,700 0 Operating expenses 20,600 20,600 0 Total fixed 36,300 36,300 0 Net income (loss) (24,900) (36,300) (11,400)

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