A recent accounting graduate from SFU evaluated the operating performance of Gibco Company's three divisions. The following presentation was made to management where she recommended eliminating the Western Division because net income would increase by $10,000, as shown in the analysis below.

North and South Divisions

Western Division

Total

Sales

$1,000,000

$305,000

$1,305,000

Cost of Goods Sold

650,000

195,000

845,000

Gross Profit

350,000

110,000

460,000

Operating Expenses

100,000

120,000

220,000

Net Income

$250,000

$ (10,000)

$240,000

Cost of goods sold is 75% variable and operating expenses are 65% variable. If the Western division is eliminated, 45% of the fixed costs in COGS and operating expenses related to the Western division will be eliminated.

Instructions

Do you concur with the recommendation? Present an "after elimination" income statement to support your answerANDpresent an incremental approach calculation.