Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increa division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

need answer with full working in text form

Dropping Unprofitable Division
Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increased by $700,000 if its engineering
division were discontinued. (Amounts are given in thousands of dollars.)
All Other Engineering
Last year results
Totals Divisions
Division
Sales
$17,250 $12,000
$5,250
Cost of services:
Variable
(6,140) (3,900)
(2,240)
Fixed
(3,360)
(2,100)
(1,260)
Gross profit
7,750
6,000
1,750
Operating expenses:
Variable
(4,750)
(3,000)
(1,750)
Fixed
(2,500)
(1,800)
(700)
Net income (loss)
$500
$1,200
$(700)
a. Assuming that total fixed costs and expenses would not be affected by discontinuing
the engineering division, is the financial vice president's analysis correct?
No
Prepare a differential analysis to support your answer.
Discontinuance of Engineering Division
Effect on net income
(in thousands)
Increase (decrease) in revenue
(Increase) decrease in cost or expense
Cost of services
Operating expenses
Net increase (decrease) in net income $
Dollars
0 x
0 x
0 %
0
Transcribed Image Text:Dropping Unprofitable Division Based on the following analysis of last year's operations of Bingham, Inc., a financial vice president of the company believes that the firm's total net income could be increased by $700,000 if its engineering division were discontinued. (Amounts are given in thousands of dollars.) All Other Engineering Last year results Totals Divisions Division Sales $17,250 $12,000 $5,250 Cost of services: Variable (6,140) (3,900) (2,240) Fixed (3,360) (2,100) (1,260) Gross profit 7,750 6,000 1,750 Operating expenses: Variable (4,750) (3,000) (1,750) Fixed (2,500) (1,800) (700) Net income (loss) $500 $1,200 $(700) a. Assuming that total fixed costs and expenses would not be affected by discontinuing the engineering division, is the financial vice president's analysis correct? No Prepare a differential analysis to support your answer. Discontinuance of Engineering Division Effect on net income (in thousands) Increase (decrease) in revenue (Increase) decrease in cost or expense Cost of services Operating expenses Net increase (decrease) in net income $ Dollars 0 x 0 x 0 % 0
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Divisional performance management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education