Exercise 20-15

Judy Jean, a recent graduate of Rollings accounting program, evaluated the operating performance of Artie Companys six divisions. Judy made the following presentation to Arties board of directors and suggested the Huron Division be eliminated. If the Huron Division is eliminated, she said, our total profits would increase by $25,260.

		The Other Five Divisions		Huron Division			Total
Sales		$1,664,970		$100,910			$1,765,880
Cost of goods sold		978,680		76,300			1,054,980
Gross profit		686,290		24,610			710,900
Operating expenses		526,670		49,870			576,540
Net income		$ 159,620		$ (25,260)			$ 134,360

In the Huron Division, cost of goods sold is $59,400 variable and $16,900 fixed, and operating expenses are $24,500 variable and $25,370 fixed. None of the Huron Divisions fixed costs will be eliminated if the division is discontinued. Prepare an incremental analysis. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Sales		$		$		$
Variable costs
Cost of goods sold
Operating expenses
Total variable
Contribution margin
Fixed costs
Cost of goods sold
Operating expenses
Total fixed
Net income (loss)		$		$		$

Is Judy right about eliminating the Huron Division?

Judy is

incorrectcorrect