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 $25,500.”

		The Other Five Divisions		Percy Division			Total
Sales		$1,663,000		$100,000			$1,763,000
Cost of goods sold		977,000		76,000			1,053,000
Gross profit		686,000		24,000			710,000
Operating expenses		526,000		49,500			575,500
Net income		$160,000		$ (25,500	)		$134,500

In the Percy Division, cost of goods sold is $59,000 variable and $17,000 fixed, and operating expenses are $29,000 variable and $20,500 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

Veronica is select an option                                                          correctincorrect

Answer 1

Answer:

Veronica should CONTINUE the Percy division as there is a benefit of $ 12,000.

In case of any doubt, please comment.