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E7-15 Judy Jean

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E7-15 Judy Jean, a recent graduate of Rolling’s accounting program, evaluated the operating
performance of Artie Company’s six divisions. Judy made the following presentation
to Artie’s board of directors and suggested the Huron Division be eliminated. “If the Huron
Division is eliminated,” she said, “our total profits would increase by $26,000.”

  The Other Five Divisions Huron Division Total
Sales   1,664,200  100,000  1,764,200
Cost of goods sold   978,520  76,000  1,054,520
Gross profit  685,680  24,000  709,680
Operating expenses   527,940  50,000  577,940
Net income   157,740  (26,000)  131,740

In the Huron Division, cost of goods sold is $61,000 variable and $15,000 fixed, and operating
expenses are $26,000 variable and $24,000 fixed. None of the Huron Division’s fixed
costs will be eliminated if the division is discontinued.

Is Judy right about eliminating the Huron Division? Prepare a schedule to support
your answer.

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