A recent accounting graduate evaluated the operating performance of Rock Company's three divisions. The following presentation was made to Rock's Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Western Division but keep the other two divisions, stating that total net income would increase by $20,000 as shown in the analysis below.

Other two division Western Division Total

SALES 1,000,000 300,000 130,000

COGS 650,000 200,000 850,000

Profit 350,000 100,000 450,000

Operating 100,000 120,000 220,000

costs

Net Income 250,000 (20,000) 230,000

Cost of goods sold is 75% variable and operating expenses are 70% variable. If the Western division is eliminated, 40% of the fixed costs will be eliminated.

Instructions Do you agree with the new accountant's recommendation? To support your answer present a full incremental analysis schedule, with calculations, to compare the financial performance if Western continues in the group or is eliminated.