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Maggie Sharrer 24500

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Maggie Sharrer, a recent graduate of Rolling’s accounting program, evaluated
the operating performance of Poway Company’s six divisions. Maggie made the following
presentation to Poway’s Board of Directors and suggested the Erie Division be eliminated.
“If the Erie Division is eliminated,” she said, “our total profits would increase
by $24,500.”

In the Erie Division, cost of goods sold is $60,000 variable and $16,500 fixed, and operating
expenses are $25,000 variable and $23,000 fixed. None of the Erie Division’s fixed
costs will be eliminated if the division is discontinued.
Is Maggie right about eliminating the Erie Division? Prepare a schedule to support
your answer.

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