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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Total |
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|
Sales |
$1,664,200 |
$100,000 |
$1,764,200 |
|
|
Cost of goods sold |
978,520 |
76,000 |
$1,054,520 |
|
|
Gross profit |
685,680 |
24,000 |
$709,680 |
|
|
Operating expenses |
527,940 |
50,000 |
$577,940 |
|
|
Net income |
$157,740 |
($26,000) |
$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.
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