A recent accounting hire at Slate Blue Industries, evaluated the operating performance of company's various divisions. The following presentation was made to company executives at a company meeting. During the presentation, the new accountant made the recommendation to eliminate the Granite Division stating that total net income would increase by $50,000, as shown in the analysis below. For the other divisions, cost of goods sold is 80% variable and operating expenses are 75% variable. The cost of goods sold for the Granite Division is 30% fixed, and its operating expenses are 80% fixed. If the division is dropped, only $44,000 of the fixed operating costs will be eliminated.
a. Is the statement that the new accountant made correct? Should the Granite Division be dropped? Present a schedule to support your answer.
b. If all of the fixed costs could be eliminated (fixed cost of goods sold and fixed operating expenses) for the Granite Division, would your answer change? Show computations.
c. What is the minimum amount of fixed costs that must be avoided in order to consider the elimination of the Granite Division to be beneficial for the Slate Blue? Show computations.

Question

A recent accounting hire at Slate Blue Industries, evaluated the operating performance of company's various divisions. The following presentation was made to company executives at a company meeting. During the presentation, the new accountant made the recommendation to eliminate the Granite Division stating that total net income would increase by $50,000, as shown in the analysis below.  For the other divisions, cost of goods sold is 80% variable and operating expenses are 75% variable. The cost of goods sold for the Granite Division is 30% fixed, and its operating expenses are 80% fixed. If the division is dropped, only $44,000 of the fixed operating costs will be eliminated. 
a. Is the statement that the new accountant made correct? Should the Granite Division be dropped? Present a schedule to support your answer.
b. If all of the fixed costs could be eliminated (fixed cost of goods sold and fixed operating expenses) for the Granite Division, would your answer change? Show computations.
c. What is the minimum amount of fixed costs that must be avoided in order to consider the elimination of the Granite Division to be beneficial for the Slate Blue? Show computations.

Quizplus · Accepted Answer

The Answer of A recent accounting hire at Slate Blue Industries, evaluated the operating performance of company's various divisions. The following presentation was made to company executives at a company meeting. During the presentation, the new accountant made the recommendation to eliminate the Granite Division stating that total net income would increase by $50,000, as shown in the analysis below.  For the other divisions, cost of goods sold is 80% variable and operating expenses are 75% variable. The cost of goods sold for the Granite Division is 30% fixed, and its operating expenses are 80% fixed. If the division is dropped, only $44,000 of the fixed operating costs will be eliminated. 
a. Is the statement that the new accountant made correct? Should the Granite Division be dropped? Present a schedule to support your answer.
b. If all of the fixed costs could be eliminated (fixed cost of goods sold and fixed operating expenses) for the Granite Division, would your answer change? Show computations.
c. What is the minimum amount of fixed costs that must be avoided in order to consider the elimination of the Granite Division to be beneficial for the Slate Blue? Show computations.

A Recent Accounting Hire at Slate Blue Industries, Evaluated the Operating