Gillaspie Brothers Outfitters sells equipment to outdoors enthusiasts. Sam Gillaspie, the company's president, just received the following income statement reporting the results of the past year.

Sam is concerned that two of the company's divisions are showing a loss, and he wonders if the company should stop selling hunting and fishing gear to concentrate solely on camping gear.

Required
a. Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division.
b. Should Sam close the hunting and fishing divisions? Why or why not?
c. Sam wants to change the allocation method used to allocate common fixed costs to the divisions. His plan is to allocate these costs based on sales revenue. Will this new allocation method change your decision on whether to close the hunting and fishing divisions? Why or whynot?

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Hunting Camping Fishing Total $1,250,000 $3,600,000 $2,380,000 $7,230,000 850,000 2,340,000 1,904,000 5,094,000 469,000 1,667,000 984,000 237,000 287,000 S 25,000) 282,000 ($ 98,000) 159,000 Sales revenue Variable cost of goods sold Fixed cost of goods sold 188,000 285,000 1,072,000 576,000 84,000 130,000 115,000 Gross profit Variable operating expenses Fixed operating expenses Common fixed costs Operating income 166,000 310,000 238,000 73,000 97,000 170,000 80,000 60,000