Continue or Eliminate Analysis
12/2013 MJC Page 2
Jeni Maynard, a new executive for Francisco Corporation has been evaluating the operating performance of her corporation. She has developed a proposal to eliminate the Gates Division in order to increase profitability. The management of Francisco Corporation has asked your input on this proposal.
Prepare a “Continue or
Eliminate Analysis” to determine if the management of the corporation should accept Jeni’s proposal or not.
The other three Divisions Gates Division Total Sales 1,324,000 120,000 1,444,000 Cost of goods sold 850,000 80,000 930,000 Gross Profit 474,000 40,000 514,000 Operating expenses 260,000 45,000 305,000 Net Income 214,000 (5,000) 209,000
In the Gate’s Division, cost of goods sole is 42,000 variable and 38,000 fixed, and operating expenses are 25,000 variable and 20,000 fixed. None of the Gates Division’s fixed costs will be eliminated if the
division is eliminated. Instructions: 1.
“Continue or Eliminate Analysis.”
Should Francisco Corporation implement Ms. Maynard’s proposal? Why or Why not?