Exercise 199 (Part Level Submission) A recent accounting graduate from Marvel St

Question

Exercise 199 (Part Level Submission) A recent accounting graduate from Marvel State University evaluated the operating performance of Fanning Company's four divisions. The following presentation was made to Fanning's Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net income would increase by $60,000. (See analysis below.) Other Three Southern Division $480,000 400,000 80,000 140,000 $ (60,000) Total Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income Divisions s 2,000,000 950,000 1,050,000 800,000 $250,000 2,480,000 1,350,000 1,130,000 940,000 $190,000 For the other divisions, cost of goods sold is 80% variable and operating expenses are 70% variable. The cost of goods sold for the Southern Division is 30% fixed, and its operating expenses are 75% fixed. If the division is eliminated, only $15,000 of the fixed operating costs will be eliminated. (a) Prepare the analysis for new accountant's recommendation. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45). Do not eave any field blank. Enter 0 for the amounts.) Net Income Increase (Decrease) Continue Eliminate

Explanation / Answer

Continue Eliminate Net Income Increase/ (decrease) Sales 2480000 2,000,000 -480,000 Less: variable cost Cost of Goods sold 1040000 760000 280000 Operating expense 595000 560000 35000 Total variable cost 1635000 1320000 315000 Conribution margin 845000 680,000 -165,000 Less: fixed cost Cost of Goods sold 310000 190000 120000 Operating expense 345,000 330,000 15000 Net decrease in net icnome 190,000 160,000 -30000

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