P2,000,000 P480,000 P2,480,000 Cost of Goods Sold 950,000 400,000 1,350,000 Gross Profit 1
A recent accounting graduate from Divine Word University evaluated the operating performance of Boswell Company's four divisions. The following presentation was made to Boswell's Board of Directors. During the presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net income would increase by P40,000. (See analysis below.)
Other Three Divisions Southern Division Total
Sales P2,000,000 P480,000 P2,480,000
Cost of Goods Sold 950,000 400,000 1,350,000
Gross Profit 1,050,000 80,000 1,130,000
Operating Expenses 800,000 120,000 920,000
Net Income P 250,000 P (40,000) P 210,000
For the other divisions, cost of goods sold is 80% variable and operating expenses are 70% variable. The cost of goods sold for the Southern Division is 25% fixed, and its operating expenses are 75% fixed. If the division is eliminated, only P4,000 of the fixed operating costs will be eliminated. The shutdown point of the Southern Division is:
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