Question

# Exercise 7-15 (Video) Your answer is partially correct. Try again. Veronica Mars, a recent graduate of...

Exercise 7-15 (Video)

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 \$26,600.”

 The Other Five Divisions Percy Division Total Sales \$1,664,000 \$100,500 \$1,764,500 Cost of goods sold 978,500 76,700 1,055,200 Gross profit 685,500 23,800 709,300 Operating expenses 527,500 50,400 577,900 Net income \$158,000 \$ (26,600 ) \$131,400

In the Percy Division, cost of goods sold is \$59,400 variable and \$17,300 fixed, and operating expenses are \$30,100 variable and \$20,300 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 MARS DIFFERENTIAL ANALYSIS PARTICULARS CONTINUE PERCY DIVISION ELIMINATE PERCY DIVISION NET INCOME INCREASE (DECREASE) \$ \$ \$ Sales 100500 0 -100500 Less- Variable Costs Cost of goods sold 59400 0 59400 Operating expenses 30100 0 30100 Total Variable costs 89500 0 89500 Contribution margin 11000 0 -11000 Less- Fixed costs Cost of goods sold 17300 17300 0 Operating expenses 20300 20300 0 Total Fixed costs 37600 37600 0 Net Income (Loss) -26600 -37600 -11000

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

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