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 $26,100.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,665,000		$100,100			$1,765,100
Cost of goods sold		978,300		76,000			1,054,300
Gross profit		686,700		24,100			710,800
Operating expenses		526,800		50,200			577,000
Net income		$159,900		$ (26,100	)		$133,800

In the Percy Division, cost of goods sold is $59,000 variable and $17,000 fixed, and operating expenses are $29,100 variable and $21,100 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).)

		Continue		Eliminate		Net Income Increase (Decrease)
Sales		$enter sales in dollars		$enter sales in dollars		$enter sales in dollars
Variable costs
Cost of goods sold		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars
Operating expenses		enter operating expenses in dollars		enter operating expenses in dollars		enter operating expenses in dollars
Total variable		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Contribution margin		enter contribution margin in dollars		enter contribution margin in dollars		enter contribution margin in dollars
Fixed costs
Cost of goods sold		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars
Operating expenses		enter operating expenses in dollars		enter operating expenses in dollars		enter operating expenses in dollars
Total fixed		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Net income (loss)		$enter net income or loss in dollars		$enter net income or loss in dollars		$enter net income or loss in dollars

Veronica is select an optionincorrectcorrect correctincorrect

Answer 1

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).)

		Continue		Eliminate		Net Income Increase (Decrease)
Sales		100100				-100100
Variable costs
Cost of goods sold		-59000				59000
Operating expenses		-29100				29100
Total variable		-88100				88100
Contribution margin		12000				-12000
Fixed costs
Cost of goods sold		-17000		-17000
Operating expenses		-21100		-21100
Total fixed		-38100		-38100
Net income (loss)		-26100		-38100		-12000

Veronica is incorrect