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 $27,100.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,665,000		$100,100			$1,765,100
Cost of goods sold		978,700		76,700			1,055,400
Gross profit		686,300		23,400			709,700
Operating expenses		528,700		50,500			579,200
Net income		$157,600		$ (27,100	)		$130,500

In the Percy Division, cost of goods sold is $60,100 variable and $16,600 fixed, and operating expenses are $30,400 variable and $20,100 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 sales in dollars		$enter sales in dollars		$enter sales in dollars
Variable costs
Cost of goods sold		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars
Operating expenses		enter operating expenses in dollars		enter operating expenses in dollars		enter operating expenses in dollars
Total variable		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Contribution margin		enter contribution margin in dollars		enter contribution margin in dollars		enter contribution margin in dollars
Fixed costs
Cost of goods sold		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars		enter the cost of goods sold in dollars
Operating expenses		enter operating expenses in dollars		enter operating expenses in dollars		enter operating expenses in dollars
Total fixed		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts		enter a subtotal of the two previous amounts
Net income (loss)		$enter net income or loss in dollars		$enter net income or loss in dollars		$enter net income or loss in dollars

Veronica is select an option                                                          correctincorrect

Answer 1

Solution:

Particulars	Continue	Eliminate	Net income Increase (Decrease)
Sales	$100,100.00	$0.00	-$100,100.00
Variable costs:
Cost of goods sold	$60100.00	$0.00	-$60100.00
Operating expenses	$30,400.00	$0.00	-$30,400.00
Total variable	$90500.00	$0.00	-$90500.00
Contribution margin	$9600.00	$0.00	-$9600.00
Fixed costs:
Cost of goods sold	$16600.00	$16600.00	$0.00
Operating expenses	$20100.00	$20100.00	$0.00
Total fixed	$36700.00	$36700.00	$0.00
Net income (Loss)	-$27100.00	-$36700.00	-$9600.00

●Veronica is not right in eliminating percy division