Arecent business graduate from Xavier Universityevaluatedthe operatingperformance of Fame Company's three divisions. The following presentation was made to Fame's Board of Directors. Duringthe presentation, the newlygraduate made the recommendation to eliminate the Northern Division,statingthattotalnetincome wouldincrease by$20,000as showninthe analysisbelow.

	OtherTwoDivisions	NorthernDivision	Total
Sales	$1,000,000	$300,000	$1,300,000
CostofGoodsSold	650,000	200,000	850,000
GrossProfit	350,000	100,000	450,000
OperatingExpenses	100,000	120,000	220,000
NetIncome	$ 250,000	$ (20,000)	$ 230,000

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