Magellan & Columbus, Ltd. manufactures boats and personal watercraft. The company operates three separate divisions: yachts, sailboats, and jet skis. The company's latest income statement is presented by product line as follows:

Required

a. Prepare a segment margin income statement showing each of the three divisions.

Fixed cost of goods sold and fixed operating expenses can be traced to each product line.

b. Chris Columbus, CEO, is concerned about the Jet Ski division's operating loss; he wants to close the division to save money. Do you support his decision? Why or why not?

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Jet Skis Yachts Sailboats Total Sales revenue Variable cost of goods sold Fixed cost of goods sold Gross profit Variable operating expenses Fixed operating expenses Allocated corporate costs Operating income $60,000,000 $22,000,000 $6,000,000 $88,000,000 45,500,000 14,700,000 21,000,000 8,000,000 4,000,000 5,000,000 1,500,000 1,000,000 2,000,000 $ 500,000 1,800,000 850,000 10,350,000 5,300,000 6,000,000 $ 6,150,000 300,000 1,000,000 $ (350,000) 3,000,000 $ 6,000,000