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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 $26,000.”
In the Percy Division, cost of goods sold is $61,000 variable and $15,000 fixed, and operating expenses are $30,000 variable and $20,000 fixed. None of the Percy Division’s fixed costs will be eliminated if the division is discontinued.
Instructions
Is Veronica right about eliminating the Percy Division? Prepare a schedule to support your answer.
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Chapter 7 Solutions
Managerial Accounting: Tools for Business Decision Making 7e + WileyPLUS Registration Card
- 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 $26,200.” The OtherFive Divisions PercyDivision Total Sales $1,663,000 $100,100 $1,763,100 Cost of goods sold 978,600 76,800 1,055,400 Gross profit 684,400 23,300 707,700 Operating expenses 526,000 49,500 575,500 Net income $158,400 $ (26,200 ) $132,200 In the Percy Division, cost of goods sold is $59,300 variable and $17,500 fixed, and operating expenses are $31,400 variable and $18,100 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…arrow_forwardLinda Mars, a recent graduate of Bell's accounting program, evaluated the operating performance of Cullumber Company's six divisions. Linda made the following presentation to Cullumber'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 $26,100." The Other Percy Division Five Divisions Total Sales $1,663,000 $100,900 $1,763,900 Cost of goods sold 977,300 76,800 1,054,100 Gross profit 685,700 24,100 709,800 Operating expenses 528,400 50,200 578,600 Net income $157,300 $ (26,100 ) $131,200 In the Percy Division, cost of goods sold is $59,500 variable and $17,300 fixed, and operating expenses are $31,000 variable and $19,200 fixed. None of the Percy Division's fixed costs will be eliminated if the division is discontinued. Is Linda right about eliminating the Percy Division? Prepare a schedule to support your answer. (Enter negative amounts using either a negative sign preceding the…arrow_forwardA recent accounting graduate from Divine Word University evaluated the operating performance of Boswell Company's four divisions. The following presentation was made to Boswell's Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net income would increase by P40,000. (See analysis below.) Other Three Divisions Southern Division Total Sales P2,000,000 P480,000 P2,480,000 Cost of Goods Sold 950,000 400,000 1,350,000 Gross Profit…arrow_forward
- Jan Shumard, president and general manager of Danbury Company, was concerned about thefuture of one of the company’s largest divisions. The division’s most recent quarterly incomestatement follows:Sales $3,751,500Less: Cost of goods sold 2,722,400Gross profit $1,029,100Less: Selling and administrative expenses 1,100,000Operating (loss) $ (70,900)Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additionalinformation has been gathered:• The division produces one product at a selling price of $100 to outside parties. Thedivision sells 50% of its output to another division within the company for $83 per unit(full manufacturing cost plus 25%). The internal price is set by company policy. If thedivision is shut down, the user division will buy the part externally for $100 per unit.• The fixed overhead assigned per unit is $20.• There is no alternative use for…arrow_forwardDarren Dillard, majority stockholder and president of Dillard, Inc., is working with his top managers on future plans for the company. As the company’s managerial accountant, you’ve been asked to analyze the following situations and make recommendations to the management team. Requirements Division A of Dillard, Inc. has $5,250,000 in assets. Its yearly fixed costs are $557,000, and the variable costs of its product line are $1.90 per unit. The division’s volume is currently 500,000 units. Competitors offer a similar product, at the same quality, to retailers for $4.25 each. Dillard’s management team wants to earn a 12% return on investment on the divisions assets. What is Division A’s target full product cost? Given the division’s current costs, will Division A be able to achieve its target profit? Assume Division A has identified ways to cut its variable costs to $1.75 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the division to achieve…arrow_forwardThe division manager of Division B received the following operating income data for the past year: The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $75,000 and decrease fixed selling and administrative expenses by $10,000. Prepare a differential analysis to show whether Division B should drop the T205 product line. What is your recommendation to the manager of Division B?arrow_forward
- Carla Vista, Inc operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. "Survival of the fittest, I say!" was his response when the Weak division's manager, insisted Joseph, that his division earned money for the company. Following is the most recent financial analysis for each division: Weak $125,400 53.900 71.500 35,100 68.600 $(32.200) Sales revenue Variable expenses Contribution margin Direct expenses Allocated expenses Operating income (a) Prepare a revised income statement showing the segment margin for each division V v V V V Average Strong $449,000 $546,900 245,800 300,700 203,200 246,200 79,700 112,700 68.600 68.600 $54,900 $64,900 $ Weak S Average $ Strong $ Totalarrow_forwardThe Custodial Division of Clark's Corporate Services (CCS) has assets of $1.2 million. During the past year, the division had profits of $228,000. CCS has a cost of capital of 7.5 percent. Ignore taxes. Required: a. Compute the divisional ROI for the Custodial Division. b. Compute the divisional RI for the Custodial Division. Complete this question by entering your answers in the tabs below. Required A Required B Compute the divisional ROI for the Custodial Division. Divisional ROI % Required A Required B >arrow_forwardA family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage answers to nearest whole percent.) Sales Net operating income Average operating assets Return on investment (ROI) Minimum required rate of return: Percentage Dollar amount Residual income A $ 9,300,000 $ 3,100,000 17% 15 % Company B $ 7,500,000 $ 315,000 $ 14 % 360,000 % $ 4,950,000 $ 1,980,000 $ % 15 % 99,000arrow_forward
- Oriole, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. “Survival of the fittest, I say!” was his response when the Weak division’s manager insisted that his division earned money for the company. Following is the most recent financial analysis for each division: Weak Average Strong Sales revenue $125,200 $349,800 $524,500 Variable expenses 55,000 192,300 302,200 Contribution margin 70,200 157,500 222,300 Direct expenses 32,900 75,100 116,600 Allocated expenses 59,800 59,800 59,800 Operating income $(22,500 ) $22,600 $45,900 (a) Prepare a revised income statement showing the segment margin for each division. Weak Average Strong Total Variable expenseOperating income Contribution margin Direct costs Allocated…arrow_forwardHoffman Ceramics, a division of Fielding Corporation, has an operating income of $64,000 and total assets of $400,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Hoffman Ceramics has the opportunity to undertake a new project that will require an investment of $100,000. This investment would earn $14,000 for the company. Read the requirements. From the standpoint of Fielding Corporation this investment is is more than Fielding's required rate of return. desirable. The ROI of the investment opportunity Requirement 4. What would the residual income (RI) be for Hoffman Ceramics if this investment opportunity were to be undertaken? Would the manager of the Hoffman Ceramics division want to make this investment if she were evaluated based on RI? Why or why not? First determine the formula to calculate the RI.…arrow_forwardOriole, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. “Survival of the fittest, I say!” was his response when the Weak division’s manager insisted that his division earned money for the company. Following is the most recent financial analysis for each division: Weak Average Strong Sales revenue $125,200 $349,800 $524,500 Variable expenses 55,000 192,300 302,200 Contribution margin 70,200 157,500 222,300 Direct expenses 32,900 75,100 116,600 Allocated expenses 59,800 59,800 59,800 Operating income $(22,500 ) $22,600 $45,900 (a) Your answer is correct. Prepare a revised income statement showing the segment margin for each division. Weak Average Strong Total Variable expenseOperating income…arrow_forward
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