University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient.

The CEO of the hospital is not pleased with the division?s performance, and he believes that the Diagnostic division is responsible for its dismal result and wants to consider outsourcing diagnostic procedures.

The controller has determined that the hospital?s headquarters allocated $98,000 and $32,000 in common administrative fixed costs, respectively, to Diagnostic and Outpatient divisions. Prepare a segment margin income statement that will provide the CEO with a better basis for evaluating the two divisions? performance.

Revenue Variable expenses Product Selling and administrative Contribution margin Less fixed costs Operating income Diagnostic $500,000 220,000 150,000 130,000 180,000 ($50,000) Outpatient $400,000 140,000 80,000 180,000 125,000 $ 55,000 Total $900,000 360,000 230,000 310,000 305,000 $ 5,000