Please explain your answer in a bit of detail, as I’m trying to learn how to do the probelm as well as simply get the answer.
A recent accounting graduate from Marvel State University evaluated the operating performance of Fanning Company’s four divisions. The following presentation was made to Fanning’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 $60,000. (See analysis below.)
| Other Three Divisions | Southern Division | Total | |||||||||||||
| Sales | $ | 2,000,000 | $ | 480,000 | $ | 2,480,000 | |||||||||
| Cost of Goods Sold | 950,000 | 400,000 | 1,350,000 | ||||||||||||
| Gross Profit | 1,050,000 | 80,000 | 1,130,000 | ||||||||||||
| Operating Expenses | 800,000 | 140,000 | 940,000 | ||||||||||||
| Net Income | $ | 250,000 | $ | (60,000 | ) | $ | 190,000 |
For the other divisions, cost of goods sold is 80% variable and operating expenses are 70% variable. The cost of goods sold for the Southern Division is 30% fixed, and its operating expenses are 75% fixed. If the division is eliminated, only $15,000 of the fixed operating costs will be eliminated.
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Prepare the analysis for new accountant’s recommendation. (Enter negative amounts using either a negative sign preceding the number e.g. 45 or parentheses e.g. (45). Do not leave any field blank. Enter 0 for the amounts.)
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