Karim Ahmed, a recent graduate of an accounting program, evaluated the operating performance of Lunar Company's four divisions. Karim Ahmed made the following presentation to the Lunar board of directors and suggested the Riffa Division be eliminated. "If the Riffa Division is eliminated," she said, "our total profits would increase by "$20,000. The Other Four Riffa Divisions Division Sales $1,600,000 $110,000 Cost of goods sold 950,000 80,000 Gross profit 650,000 30,000 Operating expenses 500,000 50,000 Net income $150,000 ($20,000) In the Riffa Division, cost of goods sold is $65.000 varis
Karim Ahmed, a recent graduate of an accounting program, evaluated the operating performance of Lunar Company's four divisions. Karim Ahmed made the following presentation to the Lunar board of directors and suggested the Riffa Division be eliminated. "If the Riffa Division is eliminated," she said, "our total profits would increase by "$20,000. The Other Four Riffa Divisions Division Sales $1,600,000 $110,000 Cost of goods sold 950,000 80,000 Gross profit 650,000 30,000 Operating expenses 500,000 50,000 Net income $150,000 ($20,000) In the Riffa Division, cost of goods sold is $65.000 varis
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
(1) Prepare an incremental analysis to eliminate or keep a division decision
(2) Is Karim Ahmed right about eliminating the Riffa Division? Why or why not
Transcribed Image Text:Karim Ahmed, a recent graduate of an accounting program, evaluated the operating performance of Lunar Company's four divisions. Karim Ahmed made the following
presentation to the Lunar board of directors and suggested the Riffa Division be eliminated. "If the Riffa Division is eliminated," she said, "our total profits would increase
by "$20,000."
The Other Four Riffa
Divisions
Division
Sales
$1,600,000
$110,000
Cost of goods sold
950,000
80,000
Gross profit
650,000
30,000
Operating expenses
500,000
50,000
Net income
$150,000
($20,000)
In the Riffa Division, cost of goods sold is $65,000 variable and $15,000 fixed, and operating expenses are $40,000 variable and $10,000 fixed. None of the Riffa
Division's fixed costs will be eliminated if the division is discontinued.
Required:
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