Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $25,700.” The Other Five Divisions Percy Division Total Sales $1,663,000 $100,900 $1,763,900 Cost of goods sold 977,800 76,100 1,053,900 Gross profit 685,200 24,800 710,000 Operating expenses 526,900 50,500 577,400 Net income $158,300 $ (25,700 ) $132,600 In the Percy Division, cost of goods sold is $59,300 variable and $16,800 fixed, and operating expenses are $30,400 variable and $20,100 fixed. None of the Percy Division’s 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. 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) Veronica is select an option incorrect correct

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Veronica Mars, a recent graduate of Bell’s accounting program, evaluated the operating performance of Dunn Company’s six divisions. Veronica made the following presentation to Dunn’s board of directors and suggested the Percy Division be eliminated. “If the Percy Division is eliminated,” she said, “our total profits would increase by $25,700.”

	The Other Five Divisions	Percy Division		Total
Sales	$1,663,000	$100,900		$1,763,900
Cost of goods sold	977,800	76,100		1,053,900
Gross profit	685,200	24,800		710,000
Operating expenses	526,900	50,500		577,400
Net income	$158,300	$ (25,700	)	$132,600

In the Percy Division, cost of goods sold is $59,300 variable and $16,800 fixed, and operating expenses are $30,400 variable and $20,100 fixed. None of the Percy Division’s 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.

	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)

Veronica is select an option incorrect correct

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