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 Divisions

Southern Division

Total

Sales

$2,000,000

$480,000

$2,480,000

Cost of Goods Sold

950,000

400,000

1,350,000

Gross Profit

1,050,000

80,000

1,130,000

Operating Expenses

800,000

140,000

940,000

Net Income

$250,000

$(60,000

)

$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.