Question

Current Attempt in Progress Linda Williams, a recent graduate of Bell's accounting program, evaluated the operating performance of Cullumber Company's six divisions. Linda made the following presentation to Cullumber'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 $100,900 $1,763,900 $1,663,000 977,300 Cost of goods sold 76,800 1,054,100 709,800 Gross profit Operating expenses 685,700 528,400 $157,300 24,100 50,200 $(26,100) 578,600 $131,200 Net Income In the Percy Division, cost of goods sold is $59.500 variable and $17,300 fixed, and operating expenses are $31,000 variable and $19.200 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. Is Linda right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sin preceding the number 68, -45 or parentheses es. (451) Net Income Increase

Answer 1

Continue $ 100,900 Net income increase/(decrease) (100,900) $ $ Sales Less: Variable cost Cost of goods sold Operating expenses Total Variable cost Contribution Margin Less: Fixed Costs Cost of goods sold Operating expenses Total Fixed Costs Net income(Loss) (59,500) $ (31,000) $ (90,500) $ 10,400 $ 59,500 31,000 90,500 (10,400) (17,300) $ (19,200) $ (36,500) $ (26,100) $ (17,300) $ (19,200) $ (36,500) $ (36,500) $ (10,400) Linda is wrong, as, if the Percy division is closed it would further increase the loss by $10,400. This has happened because the fixed cost of Percy division is not going to eliminate whereas the contribution margin it is generating at present of $10,400 would wipe off. Fixed cost to the extent of contribution margin of $10,400 would further be burden on the remaining 5 divisions and increase the loss.