Is judy right about eliminating the huron division prepare

Reference no: EM13579690

On January 2, 2013, Benson Hospital purchased a $105,164 special radiology scanner from Picard Inc. The scanner had a useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of depreciation is used on this scanner. Annual operating costs with this scanner are $104,784. Approximately one year later, the hospital is approached by Dyno Technology salesperson, Meg Ryan, who indicated that purchasing the scanner in 2013 from Picard Inc. was a mistake. She points out that Dyno has a scanner that will save Benson Hospital $29,718 a year in operating expenses over its 3-year useful life. She notes that the new scanner will cost $110,411 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Ryan agrees to buy the old scanner from Benson Hospital for $38,463.

If Benson Hospital sells its old scanner on January 2, 2014, compute the gain or loss on the sale.

2) 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 $26,070."

	The Other Five Divisions	Huron Division	Total
Sales	$1,664,360	$100,260	$1,764,620
Cost of goods sold	978,230	76,560	1,054,790
Gross profit	686,130	23,700	709,830
Operating expenses	526,420	49,770	576,190
Net income	$159,710	$ (26,070)	$133,640

In the Huron Division, cost of goods sold is $60,200 variable and $16,360 fixed, and operating expenses are $25,800 variable and $23,970 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. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Continue	Eliminate	Net Income Increase (Decrease)
Sales	$	$	$
Variable costs
Cost of goods sold
Operating expenses
Total variable
Contribution margin
Fixed costs
Cost of goods sold
Operating expenses
Total fixed
Net income (loss)	$	$	$

Reference no: EM13579690

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