Exercise 7-15 (Video)

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Veronica Mars, a recent graduate of Bells accounting program, evaluated the operating performance of Dunn Companys six divisions. Veronica 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 $26,600.

		The Other Five Divisions		Percy Division			Total
Sales		$1,664,000		$100,500			$1,764,500
Cost of goods sold		978,500		76,700			1,055,200
Gross profit		685,500		23,800			709,300
Operating expenses		527,500		50,400			577,900
Net income		$158,000		$ (26,600	)		$131,400

In the Percy Division, cost of goods sold is $59,400 variable and $17,300 fixed, and operating expenses are $30,100 variable and $20,300 fixed. None of the Percy Divisions fixed costs will be eliminated if the division is discontinued. Is Veronica 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)		$		$		$