Benai Lorenzo, a recent graduate of Bonita’s accounting program, evaluated the operating performance of Wasson Company’s six divisions. Benai made the following presentation to the Wasson board of directors and suggested the Ortiz Division be eliminated. “If the Ortiz Division is eliminated,” she said, “our total profits would increase by $23,870.” 

In the Ortiz Division, cost of goods sold is $70,000 variable and $6,470 fixed, and operating expenses are $15,000 variable and $28,600 fixed. None of the Ortiz Division’s fi xed costs will be eliminated if the division is discontinued.

Instructions 

Is Benai right about eliminating the Ortiz Division? Prepare a schedule to support your answer.

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Sales Cost of goods sold Gross profit Operating expenses Net income The Other Five Divisions $1,664,200 978,520 685,680 527,940 $ 157,740 Ortiz Division $ 96,200 76,470 19,730 43,600 $(23,870) Total $1,760,400 1,054,990 705,410 571,540 $ 133,870