Question

Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s...

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 $25,500.”

The Other
Five Divisions
Percy
Division
Total
Sales $1,663,000 $100,000 $1,763,000
Cost of goods sold 977,000 76,000 1,053,000
Gross profit 686,000 24,000 710,000
Operating expenses 526,000 49,500 575,500
Net income $160,000 $ (25,500 ) $134,500


In the Percy Division, cost of goods sold is $59,000 variable and $17,000 fixed, and operating expenses are $29,000 variable and $20,500 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 $enter sales in dollars $enter sales in dollars $enter sales in dollars
Variable costs
   Cost of goods sold enter the cost of goods sold in dollars enter the cost of goods sold in dollars enter the cost of goods sold in dollars
   Operating expenses enter operating expenses in dollars enter operating expenses in dollars enter operating expenses in dollars
      Total variable enter a subtotal of the two previous amounts enter a subtotal of the two previous amounts enter a subtotal of the two previous amounts
Contribution margin enter contribution margin in dollars enter contribution margin in dollars enter contribution margin in dollars
Fixed costs
   Cost of goods sold enter the cost of goods sold in dollars enter the cost of goods sold in dollars enter the cost of goods sold in dollars
   Operating expenses enter operating expenses in dollars enter operating expenses in dollars enter operating expenses in dollars
      Total fixed enter a subtotal of the two previous amounts enter a subtotal of the two previous amounts enter a subtotal of the two previous amounts
Net income (loss) $enter net income or loss in dollars $enter net income or loss in dollars $enter net income or loss in dollars
Veronica is select an option                                                          correct incorrect

Homework Answers

Answer #1
Continue Eliminate Net income increase(decrease)
Sales 100000 0 -100000
Variable costs:
Cost of goods sold 59000 0 59000
Operating expenses 29000 0 29000
Total variable 88000 0 88000
Contribution margin 12000 0 -12000
Fixed expenses
Cost of goods sold 17000 17000 0
Operating expenses 20500 20500 0
Total fixed 37500 37500 0
Net income/(loss) -25500 -37500 -12000
Veronica is incorrect
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