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 $27,200." Total Sales Cost of goods sold The Other The Other Percy Five Divisions Division $1,665,000 $100,100 977.400 76,900 687,600 23,200 528,700 50,400 $158,900 $(27,200) Gross profit $1,765,100 1,054,300 710,800 579,100 $131,700 Operating expenses Net income In the Percy Division, cost of goods sold is $60,000 variable and $16,900 fixed, and operating expenses are $30,800 variable and $19.600 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).)

Answer 1

	Continue	Eliminate	Net income increase(decrease)
Sales	100100	0	-100100
Variable costs:
Cost of goods sold	60000	0	60000
Operating expenses	30800	0	30800
Total variable	90800	0	90800
Contribution margin	9300	0	-9300
Fixed expenses
Cost of goods sold	16900	16900	0
Operating expenses	19600	19600	0
Total fixed	36500	36500	0
Net income/(loss)	-27200	-36500	-9300
Veronica is incorrect