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 $25,900.” The Other Five Divisions Percy Division Total Sales $1,665,000 $100,600 $1,765,600 Cost of goods sold 978,500 76,600 1,055,100 Gross profit 686,500 24,000 710,500 Operating expenses 526,900 49,900 576,800 Net income $159,600 $ (25,900 ) $133,700 In the Percy Division, cost of goods sold is $59,200 variable and $17,400 fixed, and operating expenses are $30,600 variable and $19,300 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 is

Answer 1

	Continue	Eliminate	Net income increase(decrease)
Sales	100600	0	-100600
Variable costs:
Cost of goods sold	59200	0	59200
Operating expenses	30600	0	30600
Total variable	89800	0	89800
Contribution margin	10800	0	-10800
Fixed expenses
Cost of goods sold	17400	17400	0
Operating expenses	19300	19300	0
Total fixed	36700	36700	0
Net income/(loss)	-25900	-36700	-10800
Veronica is incorrect