Exercises - Print - V2 - EXERCISES Exercise(1(Eliminate or Continue A recent accounting graduate from Duke University evaluated the operating

Exercises - Print - V2 - EXERCISES Exercise(1(Eliminate or...

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EXERCISES Exercise (1) (Eliminate or Continue) A recent accounting graduate from Duke University evaluated the operating performance of Fane Company's three divisions. The following presentation was made to Fane'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 $20,000 as shown in the analysis below. Other Two Divisions Southern Division Total Sales $1,000,000 $300,000 $1,300,000 Cost of Goods Sold 650,000 200,000 850,000 Gross Profit 350,000 100,000 450,000 Operating Expenses 100,000 120,000 220,000 Net Income $ 250,000 $ (20,000 ) $ 230,000 Cost of goods sold is 75% variable and operating expenses are 70% variable. If the division is eliminated, 40% of the fixed costs will be eliminated. Instructions Do you concur with the new accountant's recommendation? Present a schedule to support your answer. Exercise (2) (Eliminate or Continue) Herman Corporation operates two divisions, the A Division and the B Division. Both divisions manufacture and sell logs to paper manufacturers. The company is considering disposing of the B Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2008 are presented below: A Division B Division Total Sales $400,000 $300,000 $700,000 Cost of goods sold 150,000 200,000 350,000 Gross profit 250,000 100,000 350,000 Selling & administrative expenses 200,000 120,000 320,000 Net income $ 50,000 $ (20,000 ) $ 30,000 In the B Division, 80% of the cost of goods sold are variable costs and 30% of selling and administrative expenses are variable costs. The management of the company feels it can save $30,000 of fixed cost of goods sold and $30,000 of fixed selling expenses if it discontinues operation of the B Division. Instructions (a) Determine whether the company should discontinue operating the B Division. (b) If the company had discontinued the division for 2008, determine what net income would have been.
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Exercise (3) (Retain or Replace)
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  • Fall '16
  • harris
  • Finance, Net Income, B Division, Carlsen Company

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