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 $27,000.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,663,000		$100,300			$1,763,300
Cost of goods sold		978,700		76,800			1,055,500
Gross profit		684,300		23,500			707,800
Operating expenses		527,700		50,500			578,200
Net income		$156,600		$ (27,000	)		$129,600

In the Percy Division, cost of goods sold is $60,000 variable and $16,800 fixed, and operating expenses are $30,800 variable and $19,700 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 a dollar amount		$enter a dollar amount		$enter a dollar amount
Variable costs
Cost of goods sold		enter a dollar amount		enter a dollar amount		enter a dollar amount
Operating expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total variable		enter a total of the two previous amounts		enter a total of the two previous amounts		enter a total of the two previous amounts
Contribution margin		enter a dollar amount		enter a dollar amount		enter a dollar amount
Fixed costs
Cost of goods sold		enter a dollar amount		enter a dollar amount		enter a dollar amount
Operating expenses		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total fixed		enter a total of the two previous amounts		enter a total of the two previous amounts		enter a total of the two previous amounts
Net income (loss)		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

Veronica is select an option                                                          correctincorrect

Answer 1

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		100300		0		-100300
Variable costs
Cost of goods sold		-60000		0		60000
Operating expenses		-30800		0		30800
Total variable		-90800		0		90800
Contribution margin		9500		0		-9500
Fixed costs
Cost of goods sold		-16800		-16800		0
Operating expenses		-19700		-19700		0
Total fixed		-36500		-36500		0
Net income (loss)		-27000		-36500		-9500

Veronica is incorrect, Percy division would not be eliminated