ACC-650 TOPIC 7 ASSIGNMENTQuestion 3

SheridanEquipment sells equipment to sports enthusiasts. DougSheridan, the company's president, just received the following income statement reporting the results of the past year.

		Baseball		Soccer		Basketball		Total
Sales revenue		$1,310,000			$3,750,000		$2,465,000			$7,525,000
Variable cost of goods sold		884,000			2,437,500		1,985,600			5,307,100
Fixed cost of goods sold		119,300			194,700		171,500			485,500
Gross profit		306,700			1,117,800		307,900			1,732,400
Variable operating expenses		176,800			600,000		246,500			1,023,300
Fixed operating expenses		82,200			87,500		75,900			245,600
Common fixed costs		62,500			134,000		100,900			297,400
Operating income		($14,800)			$296,300		($115,400)			$166,100

Doug is concerned that two of the company's divisions are showing a loss, and he wonders if the company should stop selling baseball and basketball gear to concentrate solely on soccer gear.

(a)

Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division.(If the amount is negative then enter with a negative sign preceding the number, e.g. -5,125 or parenthesis, e.g. (5,125).)

		Baseball		Soccer		Basketball		Total
select an income statement item Operating Income Cost of Goods Sold Sales Revenue Traceable Fixed Expenses Segment Margin Operating Expenses Common Fixed Expenses Variable Expenses Contribution Margin								$
select between addition and deduction Less Add :select an opening name for section one Sales Revenue Contribution Margin Cost of Goods Sold Segment Margin Traceable Fixed Expenses Variable Expenses Operating Income Common Fixed Expenses Operating Expenses
select an income statement item Contribution Margin Operating Expenses Traceable Fixed Expenses Segment Margin Operating Income Cost of Goods Sold Sales Revenue Variable Expenses Common Fixed Expenses
select an income statement item Operating Expenses Cost of Goods Sold Common Fixed Expenses Contribution Margin Sales Revenue Variable Expenses Segment Margin Traceable Fixed Expenses Operating Income
select a summarizing line for the first part Contribution Margin Cost of Goods Sold Operating Expenses Segment Margin Operating Income Common Fixed Expenses Traceable Fixed Expenses Variable Expenses Sales Revenue
select an opening name for section two Cost of Goods Sold Traceable Fixed Expenses Common Fixed Expenses Segment Margin Variable Expenses Sales Revenue Operating Expenses Operating Income Contribution Margin
select an income statement item Contribution Margin Operating Income Operating Expenses Common Fixed Expenses Sales Revenue Segment Margin Variable Expenses Cost of Goods Sold Traceable Fixed Expenses
select an income statement item Contribution Margin Sales Revenue Cost of Goods Sold Variable Expenses Common Fixed Expenses Segment Margin Traceable Fixed Expenses Operating Expenses Operating Income
select a summarizing line for the second part Traceable Fixed Expenses Cost of Goods Sold Sales Revenue Operating Expenses Contribution Margin Operating Income Variable Expenses Segment Margin Common Fixed Expenses		$
select an income statement item Cost of Goods Sold Operating Income Sales Revenue Contribution Margin Traceable Fixed Expenses Segment Margin Operating Expenses Common Fixed Expenses Variable Expenses
select a closing name for this statement Sales Revenue Common Fixed Expenses Contribution Margin Variable Expenses Traceable Fixed Expenses Cost of Goods Sold Operating Income Segment Margin Operating Expenses

(b)

Should Doug close the baseball and basketball divisions?

Dougselect an option should should not consider closing the baseball division.

Dougselect an option should should not consider closing the basketball division.

(c)

Doug 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 baseball and basketball divisions?

Changing allocation methodsselect an option will not will change the decision.