Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the ope
ID: 2536282 • 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 $25,300.”
In the Percy Division, cost of goods sold is $60,100 variable and $16,400 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).)
Five Divisions Percy
Division Total Sales $1,663,000 $100,900 $1,763,900 Cost of goods sold 978,400 76,500 1,054,900 Gross profit 684,600 24,400 709,000 Operating expenses 528,500 49,700 578,200 Net income $156,100 $ (25,300 ) $130,800
Explanation / Answer
Net income Continue Eliminate increase (Decrease) Sales 100,900 0 -100,900 Variable costs Cost of goods sold 60,100 0 60,100 operating expenses 29,100 0 29,100 Total variable 89,200 0 89,200 contribution margin 11,700 -11,700 fixed costs Cost of goods sold 16400 16,400 0 operating expenses 20,600 20,600 0 total fixed 37000 37,000 0 net income(loss) -25,300 -37,000 -11,700
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