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 |
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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