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10-25 Segemt margin income statement (LO 2) Jim Coston was reviewing the latest income statement for Trenton Communications. For the second year in a row,
10-25 Segemt margin income statement (LO 2) | ||||||
Jim Coston was reviewing the latest income statement for Trenton Communications. For the second year in a row, the Audio division was showing a negative segment margin, and Jim thought it was time to close the division to increase the company's operating income. The income statement that he examined follwows. | ||||||
Video Division | Audio Division | Total | ||||
Sales revenue | $5,300,000 | $2,860,000 | $8,160,000 | |||
Less variable expenses | $3,650,000 | $1,645,000 | $5,295,000 | |||
Contribution margin | $1,650,000 | $1,215,000 | $2,865,000 | |||
Less traceable fixed expenses | $943,000 | $1,275,000 | $2,218,000 | |||
Segment margin | $707,000 | ($60,000) | $647,000 | |||
Common fixed costs | $555,000 | |||||
Net operating income | $92,000 | |||||
When Jim broke the news, Chloe Sams, manager of the Audio division, was upset. Chloe thought that Jim could be making a snap judgment, and suggested that he look at the division's detailed operating results. The Audio division is composed of two groups, Streaming and CD. Straming accounts for 75% of the division's sales and contribution margin; CD accounts for the other 25%. Streaming's traceable fixed costs are $450,000; CD, $350,000. | ||||||
Required | ||||||
a. Prepare a segment margin income statement for the Audio division that shows the segment margin of each group. | ||||||
b. Should Jim Coston close the Audio Division? Why or why not? |
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