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Pat Lee, a recent graduate of a Bachelor of Business Program, is evaluating the operating performance of Popo Inc., which has six divisions. The Erie
Pat Lee, a recent graduate of a Bachelor of Business Program, is evaluating the operating performance of Popo Inc., which has six divisions. The Erie division is incurring a loss, while the other five divisions are all reporting healthy profits. The following information has been made available to Pat Lee. Erie Division POPO Inc. The other five divisions TOTAL Sales $96,200 $1,664,200 $1,760,400 Cost of goods sold 76,470 978,520 1,054,990 Gross profit 19,730 685,680 705,410 Operating expenses 43,600 527,940 571,5401 Net Income $(23,870) $157,740 $133,870 In the Erie Division, the cost of goods sold is $70,000 variable and $6,470 fixed, and operating expenses are $15,000 variable and $28,600 fixed. If the Erie division is closed, $10,000 of its total fixed costs (ie: $6,470 and $28,600) would not be avoidable and would have to be absorbed by the five remaining divisions. Required: You must show all your calculations in order to get marks. If you provide the answer only you will not receive any marks. 1) Prepare a contribution type income statement for the Erie Division. 2) Prepare an analysis to determine the impact on total profits if the Erie division is closed? ( show all your calculations) 3) Should the Erie Division be closed
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