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 $27,100." Sales Cost of goods sold Gross profit Operating expenses Net income The Other Percy Five Divisions Division $1,665,000 $100,100 978,700 76,700 686,300 23,400 528,700 50,500 $157,600 $ (27,100) Total $1,765,100 1,055,400 709,700 579,200 $130,500 In the Percy Division, cost of goods sold is $60,100 variable and $16,600 fixed, and operating expenses are $30,400 variable and $20,100 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).) 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

Answer
Particular	Continue	Eliminate	Net Income Increase/decrease
Sales	$ 100,100	$             -	decrease
Variable cost
Cost of good sold	$    60,100	$             -	decrease
Operating expenses	$    30,400	$             -	decrease
Total Variable	$    90,500	$             -
Contribution margin	$      9,600	$             -	decrease
Fixed cost
Cost of good sold	$    16,600	$     16,600	same
Operation expenses	$    20,100	$     20,100	same
Total fixed	$    36,700	$     36,700
Net Income	-$    27,100	-$     36,700	Loss increases
Veronica is WRONG.
If the Percy Division is eliminated, still there will be a loss of $9600 (36700-27100)