Question s

Karim Anmed, a recent graduate of an accounting program, evaluated the operating performance of Lunar Company's four divisions. Karim Ahmed made the following presentation to the Lunar board of directors and suggested the Riffa Division be

eliminated. If the Riffa Division is eliminated. she said, "our total profits would increase bv"$10.000

Sales

Cost of goods sold

Gross profit

Operating expenses

Net income

The Other Four Riffa

DIVISIOnS

Division

$1,300,000

$90.000

600.000

65,000

700 000

25.000

350 000

35,000

$350.000

($10,000)

In the Riffa Division, cost of goods sold is $45,000 variable and $20,000 fixed, and operating expenses are $20,000 variable and $15,000 fixed. None of the Riff Division's fixed costs will be eliminated if the division is discontinued.

Required:

(1) Prepare an incremental analysis to eliminate or keep a division decision. (6.5 marks)

(2) Is Karim Ahmed right about eliminating the Riffa Division? Why or why not? (1.5 marks)

Kardan gratate of an accoged the oppemance of aer Company's fur dve Kam Methewing prett sede satur pros ou ty 1000 The Other Four Divisions Division 3ww $1.300.000 100.000 000000 65.000 Cast of goods sud Gross prot 700,000 25,000 Opating expenses 350.000 35,000 Net income $350,000 ($10,000) In the Ruffa Divion cost of goods sold is $45.000 wanable and $20,000 fixed and operating expenses are $20.000 variable and $15.000 Exed None of the Rus Divion's todos wd be emad the dision is discontinued Requirest (1) Prepare an incremental analysis to eliminate or keep a division decision 3 k (2) Is Karim Ahmed right about eliminating the Rita Owinion? Why or why not? (15) for the poc pre ALTO ALTFM BIVS Pagraph 10