Question
Waterway Mars, a recent graduate of Bells accounting program, evaluated the operating performance of Dunn Companys six divisions. Waterway made the following presentation to Dunns
Waterway Mars, a recent graduate of Bells accounting program, evaluated the operating performance of Dunn Companys six divisions. Waterway 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 $26,900.
The Other Five Divisions | Percy Division | Total | ||||||
Sales | $1,665,000 | $100,600 | $1,765,600 | |||||
Cost of goods sold | 978,700 | 77,000 | 1,055,700 | |||||
Gross profit | 686,300 | 23,600 | 709,900 | |||||
Operating expenses | 527,200 | 50,500 | 577,700 | |||||
Net income | $159,100 | $ (26,900 | ) | $132,200 |
In the Percy Division, cost of goods sold is $59,200 variable and $17,800 fixed, and operating expenses are $31,600 variable and $18,900 fixed. None of the Percy Divisions fixed costs will be eliminated if the division is discontinued. Is Waterway 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).)
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) | $ | $ | $ |
Waterway is ???? |
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