Veronica Mars, a recent graduate of Bell\'s accounting program, evaluated the op

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 $26,000." The Other Five Divisions 1,664.200 Percy Division Total Sales $100,000 .764.200 Cost of goods sold Gross Profit 685,680 527,940 $157,740 76,000 24,000 50,000 1,054,520 709,680 577,940 $131,740 Net income In the Percy Division, cost of goods sold is $61,000 variable and $15,000 fixed, and operating expenses are $30,000 variable and $20,000 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. s Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. Net income Increase (Decrease) Continue Eliminate Sales Variable costs Cost of goods sold Operating expenses Total variable Contribution margin Fixed costs Cost of goods solcd Operating expenses Total fixed Net income (loss)

Explanation / Answer

Prepare a schedule :

SHould not eliminate the division

Continue Eliminate Net income increase (decrease) Sales 100000 0 (100000) Variable costs Cost of goods sold 61000 0 61000 Operating expenses 30000 0 30000 Total variable 91000 0 91000 Contribution margin 9000 0 -9000 Fixed costs Cost of goods sold 15000 15000 None Operating expenses 20000 20000 None Total fixed 35000 35000 None Net income (loss) -26000 -35000 -9000

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