Judy
Jean, a recent graduate of Rolling's accounting program, evaluated the
operating performance of Artie Company's six divisions.
E7-15 Judy
Jean, a recent graduate of Rolling's accounting program, evaluated the
operating performance of Artie Company's six divisions. Judy made the following
presentation to Artie's Board of Directors and suggested the Huron Division be
eliminated. "If the Huron Division is eliminated," she said,
"our total profits would increase by $24,500.
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The Other Five Divisions
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Huron Division
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Total
|
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Sales
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$1,664,200
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$100,000
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$1,764,200
|
|
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Cost of goods sold
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978,520
|
76,000
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$1,054,520
|
|
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Gross profit
|
685,680
|
24,000
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$709,680
|
|
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Operating expenses
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527,940
|
50,000
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$577,940
|
|
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Net income
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$157,740
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($26,000)
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$131,740
|
|
In the
Huron Division, cost of goods sold is $61,000 variable and $15,000 fixed, and
operating expenses are $26,000 variable and $24,000 fixed. None of the Huron
Division's fixed costs will be eliminated if the division is discontinued.
Instructions
Is Judy right about eliminating the Huron Division? Prepare a schedule to support your answer.
TUTORIAL PREVIEW
Is Judy right about eliminating the Huron Division? Prepare a schedule to support your answer.
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Net Income
Increase (Decrease) |
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Continue
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Eliminate
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Sales
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$100,000
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$0
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($100,000)
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|
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Variable expenses
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||||
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Cost of goods sold
|
61,000
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0
|
61,000
|
|
|
Operating expenses
|
26,000
|
0
|
26,000
|
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