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 $26,600.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,664,000		$100,000			$1,764,000
Cost of goods sold		978,000		76,900			1,054,900
Gross profit		686,000		23,100			709,100
Operating expenses		526,300		49,700			576,000
Net income		$159,700		$ (26,600	)		$133,100

In the Percy Division, cost of goods sold is $60,800 variable and $16,100 fixed, and operating expenses are $31,600 variable and $18,100 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

Answer 1

Answer-

VERONICA MARS
DIFFERENTIAL ANALYSIS
PARTICULARS	CONTINUE PERCY DIVISION	ELIMINATE PERCY DIVISION	NET INCOME INCREASE (DECREASE)
	$	$	$
Sales	100000	0	-100000
Less- Variable Costs
Cost of goods sold	60800	0	-60800
Operating expenses	31600	0	-31600
Total Variable costs	92400	0	-92400
Contribution margin	7600	0	-7600
Less- Fixed costs
Cost of goods sold	16100	16100	0
Operating expenses	18100	18100	0
Total Fixed costs	34200	34200	0
Net Income (Loss)	-26600	-34200	-7600

No, Vernica is not right about elimination pecy division.