Answer:
Effect on income= -$49,500
They lost the positive contribution margin increased by the fixed costs. Veronica is wrong.
Explanation:
Giving the following information:
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 $25,500.
Percy Division
Sales= $100,000
Cost of goods sold= 76,000
Gross profit= 24,000
Operating expenses= 49,500
Net income= (25,500)
In the Percy Division, the cost of goods sold is $59,000 variable and $17,000 fixed, and operating expenses are $29,000 variable and $20,500 fixed.
None of the Percy Division's fixed costs are avoidable.
Effect on income= -contribution margin - fixed costs
Effect on income= -(100,000 - 88,000) - 37,500= -$49,500
They lost the positive contribution margin increased by the fixed costs.
