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 $26,500.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,663,000		$100,000			$1,763,000
Cost of goods sold		978,100		76,800			1,054,900
Gross profit		684,900		23,200			708,100
Operating expenses		529,000		49,700			578,700
Net income		$155,900		$ (26,500	)		$129,400

In the Percy Division, cost of goods sold is $60,500 variable and $16,300 fixed, and operating expenses are $29,100 variable and $20,600 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).)

		Continue		Eliminate		Net Income Increase (Decrease)
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

incorrectcorrect

Answer 1

Answer-

VERONICA MARS
DIFFERENTIAL ANALYSIS
PARTICULARS	CONTINUE PERCY DIVISION	ELIMINATE PERCY DIVISION	NET INCOME INCREASE (DECREASE)
	$	$	$
Sales	100000	0	-100000
Less- Variable Costs
Cost of goods sold	60500	0	-60500
Operating expenses	29100	0	-29100
Total Variable costs	89600	0	-89600
Contribution margin	10400	0	-10400
Less- Fixed costs
Cost of goods sold	16300	16300	0
Operating expenses	20600	20600	0
Total Fixed costs	36900	36900	0
Net Income (Loss)	-26500	-36900	-10400

No, Veronica is not right to eliminating the Percy Division.