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 $26,900.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,665,000		$100,600			$1,765,600
Cost of goods sold		978,700		77,000			1,055,700
Gross profit		686,300		23,600			709,900
Operating expenses		527,200		50,500			577,700
Net income		$159,100		$ (26,900	)		$132,200

In the Percy Division, cost of goods sold is $59,200 variable and $17,800 fixed, and operating expenses are $31,600 variable and $18,900 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

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		100600		0		-100600
Variable costs
Cost of goods sold		-59200		0		59200
Operating expenses		-31600		0		31600
Total variable		-90800		0		90800
Contribution margin		9800		0		-9800
Fixed costs
Cost of goods sold		-17800		-17800		0
Operating expenses		-18900		-18900		0
Total fixed		-36700		-36700		0
Net income (loss)		-26900		-36700		-9800

Veronica is incorrect