E20-15 Use incremental analysis concerning elimination of division. Veronica Mar

Question

E20-15 Use incremental analysis concerning elimination of division. 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 Percy Five Divisions Division Total Sales $1,664,200 $100,000 $1,764,200 Cost of goods sold 978,520 76,000 1,054,520 Gross Profit 685,680 24,000 709,680 Operating expenses 527,940 50,000 577,940 Net income $157,740 ($26,000) $131,740 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. Instructions Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. E20-15 Use incremental analysis concerning elimination of division. 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 Percy Five Divisions Division Total Sales $1,664,200 $100,000 $1,764,200 Cost of goods sold 978,520 76,000 1,054,520 Gross Profit 685,680 24,000 709,680 Operating expenses 527,940 50,000 577,940 Net income $157,740 ($26,000) $131,740 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. Instructions Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer.

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Sales         100,000.00 Less Variable costs :    Cost of goods sold            61,000.00 Operating expenses            30,000.00 Total variable costs            91,000.00 Contribution Margin = 100,000 - 91,000              9,000.00 Since fixed costs would be incurred whether percy is continued or eliinated, therefore fixed costs are irrelevant in decision making If the percy division is discontinued, then income of the company would decline by 9,000

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