Question

Jessica Simpson, a recent graduate of Duncan accounting program, evaluated the operating performance of Duncan's Company’s six divisions. Jessica made the following presentation to Duncan's board of directors and suggested the Jackson Division be eliminated. “If the Jackson Division is eliminated,” she said, “our total profits would increase by $26,100.”

		The Other Five Divisions		Jackson Division			Total
Sales		$1,663,000		$100,900			$1,763,900
Cost of goods sold		977,300		76,800			1,054,100
Gross profit		685,700		24,100			709,800
Operating expenses		528,400		50,200			578,600
Net income		$157,300		$ (26,100	)		$131,200

In the Jackson Division, cost of goods sold is $59,500 variable and $17,300 fixed, and operating expenses are $31,000 variable and $19,200 fixed. None of the Jackson Division’s fixed costs will be eliminated if the division is discontinued.

Is Jessica 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)		$		$		$

Jessica is

correct or incorrect?

Answer 1

	Continue	Eliminate	Net Income Increase (Decrease)
Sales	$100,900	$0	($100,900)
Variable costs
Cost of goods sold	$59,500	$0	$59,500
Operating expenses	$31,000	$0	$31,000
Total variable	$90,500	$0	$90,500
Contribution margin	$10,400	$0	($10,400)
Fixed costs
Cost of goods sold	$17,300	$17,300	$0
Operating expenses	$19,200	$19,200	$0
Total fixed	$36,500	$36,500	$0
Net income (loss)	($26,100)	($36,500)	($10,400)

Jessica is correct or incorrect? = Incorrect