Exercise 20-15 Judy Jean, a recent graduate of Rolling’s accounting program, eva
ID: 2461606 • Letter: E
Question
Exercise 20-15
Judy Jean, a recent graduate of Rolling’s accounting program, evaluated the operating performance of Artie Company’s six divisions. Judy made the following presentation to Artie’s board of directors and suggested the Huron Division be eliminated. “If the Huron Division is eliminated,” she said, “our total profits would increase by $25,890.”
In the Huron Division, cost of goods sold is $60,900 variable and $15,430 fixed, and operating expenses are $24,100 variable and $26,180 fixed. None of the Huron Division’s fixed costs will be eliminated if the division is discontinued.
Prepare an incremental analysis. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Is Judy right about eliminating the Huron Division?
LINK TO TEXT
The OtherFive Divisions Huron
Division Total Sales $1,663,200 $100,720 $1,763,920 Cost of goods sold 977,010 76,330 1,053,340 Gross profit 686,190 24,390 710,580 Operating expenses 527,390 50,280 577,670 Net income $ 158,800 $ (25,890) $ 132,910
Explanation / Answer
Judy is incorrect as discontinuance of huron division will result in incremental loss of $ 15720
continue Eliminate Increase /(decrease) sales 100720 0 -100720 variable cost cost of goods sold 60900 0 60900 operating expense 24100 0 24100 Total variable - 85000 0 85000 contribution margin 15720 0 -15720 Fixed cost Cost of goods sold 15430 15430 0 Operating expense 26180 26180 0 Total fixed cost -41610 -41610 0 Net income /(loss) -25890 -41610 -15720Related Questions
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