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Kimberly Young, a recent graduate of Beca University's accounting program, evaluated the operating performance of Shamrock Company's six divisions. Kimberly made the following presentation
Kimberly Young, a recent graduate of Beca University's accounting program, evaluated the operating performance of Shamrock Company's six divisions. Kimberly made the following presentation to Shamrock's board of directors and suggested the Erie division be eliminated. "If the Erie division is eliminated," she said, "our total profits would increase by $24,500." The Other Five Divisions Erie Division Total Sales $1,665,000 $100,600 $1,765,600 Cost of goods sold 977,600 76,800 1,054,400 Gross profit 687,400 23,800 711,200 Operating expenses 527,000 48,300 575,300 Net income $160,400 $(24,500) $135,900 In the Erie division, the cost of goods sold is $59,000 variable and $17,800 fixed, and operating expenses are $14,900 variable and $33,400 fixed. None of the Erie division's fixed costs will be eliminated if the division is discontinued. Is Kimberly right about eliminating the Erie Division? Prepare a schedule to support your answer. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).) Contribution margin Fixed costs Variable costs Sales Net income/(loss) Kimberly is Net Income Increase Continue Eliminate (Decrease) $ $ $ $ $ $
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