A recent accounting graduate from Lethbridge University evaluated the operating performance of Fane Company's three divisions. The following presentation was made to Fanes Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net income would increase by $20,000, as shown in the analysis below.

Other Two Divisions Southern Division Total

Sales $1,000,000 $300,000 $1,300,000

Cost of Goods Sold 650,000 200,000 850,000

Gross Profit 350,000 100,000 450,000

Operating Expenses 100,000 120,000 220,000

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

Cost of goods sold is 80% variable and operating expenses are 70% variable. If the division is eliminated, 40% of the fixed costs will be eliminated.