Security Services has two divisions: Basic Monitoring and Custom Monitoring. Rachel Sims, Custom's manager, wants to find out why the Custom Monitoring Division is not profitable. She has prepared the reports that follow.

1. How will Security Services be affected if the Custom Monitoring Division is eliminated?
2. How will Security Services be affected if the Design segment of Custom Monitoring is eliminated?
3. Accounting Connection –¶ What should Rachel Sims do? What additional information would be helpful to her in making the decision?

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Segmented Income Statement For the Year Ended December 31 Monitoring (1,000 locations (200 locations Company $350,000 250,000 $100,000 Direct professional labor: design Direct professional labor: install Direct professional labor: maintain $120,000 $230,000 200,000 Less direct fixed costs: 6,000 Depreciation on computer equipment Depreciation on servers Total direct fixed costs Segment margin $140,000 costs: Building rent Total common fixed costs Security Services Custom Monitoring Division Segment Profitability Decision Incremental Analysis Design 50,000 50,000 0.00 8,000 $(8,000) Install $25,000 10,000 $15,000 13,000 2,000 Maintain $25,000 10,000 $15,000 13,000 2,000 Total 100,000 Service revenue Less variable costs Contribution margin Less direct fixed costs Segment margin 70,000 30,000 34,000 (4,000)