# Managerial Accounting: E26-8 Judy Herzog, a recent graduate of Rolling's program

Managerial Accounting

Exercise 26-8

Judy Herzog, a recent graduate of Rolling's program, evaluated the operating performance of Poway Company's six divisions. Judy made the following presentation to Poway's Board of Directors and suggested the Ketchum Division be eliminated. "If the Ketchum Division is eliminated," she said, "our total profits would increase by $30,200."

The Other Five Divisions Ketchum Division Total

Sales 1,663,530 98,200 1,762,012

Cost of goods sold 987,710 76,470 1,063,910

Gross profit 675,820 21,730 698,102

Operating expenses 527,030 38,600 575,270

Net income $148,790 $(16,870) $122,832

In the Ketchum Division, cost of goods sold is $56,000 variable and $20,470 fixed, and operating expenses are $12,000 variable and $26,600 fixed.

None of the Ketchum Division's fixed costs will be eliminated if the division is discontinued.

Is Judy right about eliminating the Ketchum Division? Complete the following incremental analysis to support your answer.(If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45).)

Exercise 26-8

Judy Herzog, a recent graduate of Rolling's program, evaluated the operating performance of Poway Company's six divisions. Judy made the following presentation to Poway's Board of Directors and suggested the Ketchum Division be eliminated. "If the Ketchum Division is eliminated," she said, "our total profits would increase by $30,200."

The Other Five Divisions Ketchum Division Total

Sales 1,663,530 98,200 1,762,012

Cost of goods sold 987,710 76,470 1,063,910

Gross profit 675,820 21,730 698,102

Operating expenses 527,030 38,600 575,270

Net income $148,790 $(16,870) $122,832

In the Ketchum Division, cost of goods sold is $56,000 variable and $20,470 fixed, and operating expenses are $12,000 variable and $26,600 fixed.

None of the Ketchum Division's fixed costs will be eliminated if the division is discontinued.

Is Judy right about eliminating the Ketchum Division? Complete the following incremental analysis to support your answer.(If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45).)

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