0 Use incremental analysis for elimination of division Net Income Retain Replace Increase Machine Machine (Decrease) Operating costs $150,000 $120,000 $30,000 New machine cost 25,000 (25.000) Salvage value (old) (5,000) 5,000 Total $150.000 S140,000 $10,000 *$25,000 x 6 **$20,000 x 6 The current machine should be replaced. The incremental analysis shows that net income for the 6-year period will be $10,000 higher by replacing the current machine. 4. (LO 6) Benai Lorenzo, a recent graduate of Bonita's accounting program, evaluated the operat- ing performance of Wasson Company's six divisions. Benai made the following presentation to the Wasson board of directors and suggested the Ortiz Division be eliminated. "If the Ortiz Division is eliminated." she said, "our total profits would increase by $23,870. The Other Ortiz Five Divisions Division Total $1,664,200 $ 96,200 $1,760,400 Cost of goods sold 978,520 76,470 1,054.990 Gross profit 685,680 19.730 705,410 Operating expenses 527,940 43,600 571.540 Net income S 157,740 S(23,870) $ 133,870 In the Ortiz Division, cost of goods sold is $70,000 variable and S6,470 fixed and operating expenses are $15,000 variable and $28,600 fixed. None of the Ortiz Division's fixed costs will be eliminated if the division is discontinued. Instructions Is Benai right about eliminating the Ortiz Division? Prepare an incremental analysis schedule to sup- port your answer. a24sales