Barb Bach recently graduated from Coral College€™s accounting program. She has been hired as an analyst by Rainier Ski Co. and one of her first assigned tasks was to evaluate the Colorado division of Rainier Ski Co. This division has been heavily focused on producing a special snowboard. Sales of the snowboard have been disappointing and management is now evaluating whether to eliminate the Colorado division. Barb performed the following analysis and is preparing to address the Board of Directors of Rainier Ski Co. with her recommendation that the Colorado division should be eliminated, resulting in an increase to total company profit of $49,000.

The Colorado division€™s cost of goods sold includes $70,000 in fixed costs and operating expenses include $90,000 in fixed costs. None of the fixed costs will be eliminated if the Colorado division is discontinued.

Required:

Do you agree with Barb€™s analysis? Use incremental analysis to support yourconclusion.

Transcribed Image Text:

All Other Divisions Colorado Total Sales revenue Cost of goods sold Gross profit Operating expenses Net operating income (loss) $3,328,400 1,957,040 $1,371,360 1,055,880 315,480 $300,000 153,000 $147,000 196,000 $(49,000) $3,628,400 2,110,040 $1,518,360 1,251,880 $ 266,480