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 $26,400." The Other Five Divisions Percy Division Total Sales $1,663,000 $100,400 $1,763,400 Cost of goods sold Gross profit 977,900 685,100 526,800 76,700 23,700 50,100 1,054,600 708,800 576,900 Operating expenses Net income $158,300 $ (26,400) $131,900 In the Percy Division, cost of goods sold is $59,400 variable and $17,300 fixed, and operating expenses are $30,200 variable and $19,900 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 (Decrease) Continue Eliminate Sales Variable costs Cost of goods sold Operating expenses Total variable Contribution margin Fixed costs Cost of goods sold Operating expenses Total fixed Net income (loss) Veronica is

Answer 1

Solution:

Particulars	Continue	Eliminate	Net income Increase (Decrease)
Sales	$100,400.00	$0.00	-$100,400.00
Variable costs:
Cost of goods sold	$59,400.00	$0.00	-$59,400.00
Operating expenses	$30,200.00	$0.00	-$30,200.00
Total variable	$89,600.00	$0.00	-$89,600.00
Contribution margin	$10,800.00	$0.00	-$10,800.00
Fixed costs:
Cost of goods sold	$17,300.00	$17,300.00	$0.00
Operating expenses	$19,900.00	$19,900.00	$0.00
Total fixed	$37,200.00	$37,200.00	$0.00
Net income (Loss)	-$26,400.00	-$37,200.00	-$10,800.00

Veronica is not right in eliminating percy division.