A recent accounting graduate from Missouri State University evaluated the operating performance of Boswell Company’s four divisions. The following presentation was made to Boswell’s Board of Directors

A recent accounting graduate from Missouri State 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 $60,000. (See analysis below.)

Other Three Divisions Southern Division Total

Sales $2,000,000 $480,000 $2,480,000

Cost of Goods Sold 950,000 400,000 1,350,000

Gross Profit 1,050,000 80,000 1,130,000

Operating Expenses 800,000 140,000 940,000

Net Income $ 250,000 $ (60,000) $ 190,000

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 35% fixed, and its operating expenses are 75% fixed. If the division is eliminated, only $10,000 of the fixed operating costs will be eliminated.

Instructions

What is the income change a result of & for how much ? Provide as much detail & narrative to support you answer.

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