Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the ope
ID: 2775660 • 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 $25,700.”
In the Percy Division, cost of goods sold is $59,100 variable and $17,100 fixed, and operating expenses are $30,500 variable and $19,400 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 $100,400 $1,763,400 Cost of goods sold 977,000 76,200 1,053,200 Gross profit 686,000 24,200 710,200 Operating expenses 528,400 49,900 578,300 Net income $157,600 $ (25,700 ) $131,900
Explanation / Answer
Statement showig evaluation of proposal Partciulars continue Eliminate Net Income Increase(Decrease) Sales 100,400.00 - 100,400.00 Variable Costs: Cost of goods sold 59,100.00 - 59,100.00 Operating Expenses 30,500.00 - 30,500.00 Variable Costs 89,600.00 - 89,600.00 Contribution 10,800.00 - 10,800.00 Fixed Costs: Cost of goods sold 17,100.00 17,100.00 - Operating Expenses 19,400.00 19,400.00 - Total Fixed 36,500.00 36,500.00 - Net Income (25,700.00) (36,500.00) 10,800.00 Thus it is better to continue the division Veronica is incorrect
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