Exercise 20-15

Veronica Mars, a recent graduate of Bells accounting program, evaluated the operating performance of Dunn Companys six divisions. Veronica made the following presentation to Dunns board of directors and suggested the Percy Division be eliminated. If the Percy Division is eliminated, she said, our total profits would increase by $26,000.

The Other Five Divisions Division Percy Total Sales Cost of goods sold Gross profit Operating expenses Net income $1,664,200 $100,000 $1,764,200 978,520 76,000 1,054,520 709,680 577,940 $157,740 $ (26,000)$131,740 685,680 24,000 527,94050,000 In the Percy Division, cost of goods sold is $61,000 variable and $15,000 fixed, and operating expenses are $30,000 variable and $20,000 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Continue Eliminate Sales 30100000 000001 Variable costs Cost of goods sold 100 100 Operating expenses Total variable 100 100 Contribution margin 900 Fixed costs Cost of goods sold 5000 5000 15000 Operating expenses 20000 Total fixed 5000 5000 35000 Net income (loss) 44000 Veronica is [incorrec