Question

Coronado Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Coronado 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 $26,600.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,665,000		$100,000			$1,765,000
Cost of goods sold		978,500		76,200			1,054,700
Gross profit		686,500		23,800			710,300
Operating expenses		526,300		50,400			576,700
Net income		$160,200		$ (26,600	)		$133,600

In the Percy Division, cost of goods sold is $60,300 variable and $15,900 fixed, and operating expenses are $29,900 variable and $20,500 fixed. None of the Percy Division’s fixed costs will be eliminated if the division is discontinued.

Is Coronado right about eliminating the Percy Division? Prepare a schedule to support your answer