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Exercise 20-15 Judy Jean, a recent graduate of Rolling’s accounting program, eva

ID: 2462241 • 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 $25,690.”


In the Huron Division, cost of goods sold is $59,600 variable and $16,830 fixed, and operating expenses are $25,000 variable and $25,250 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?

The Other
Five Divisions Huron
Division
Total Sales $1,663,740 $100,990 $1,764,730 Cost of goods sold 978,970 76,430 1,055,400 Gross profit 684,770 24,560 709,330 Operating expenses 528,230 50,250 578,480 Net income $   156,540 $ (25,690) $   130,850

Explanation / Answer

Continue Eliminate Net Income Increase (Decrease) Sales      1,764,730      1,663,740        100,990 Variable costs    Cost of goods sold      1,055,400        995,800          59,600 Gross Profit        709,330        684,770          24,560 Fixed costs    Operating expenses        578,480        553,480          25,000 Net income (loss)        130,850        131,290              (440) Judy is incorrect