Question
Adams Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. ADAMS COMPANY Income Statements
Adams Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. ADAMS COMPANY Income Statements for Year 2 Segment A B C Sales $ 163,000 $ 255,000 $ 245,000 Cost of goods sold (128,000 ) (88,000 ) (92,000 ) Sales commissions (16,000 ) (25,000 ) (29,000 ) Contribution margin 19,000 142,000 124,000 General fixed operating expenses (allocation of presidents salary) (41,000 ) (47,000 ) (30,000 ) Advertising expense (specific to individual divisions) (6,000 ) (15,000 ) 0 Net income (loss) $ (28,000 ) $ 80,000 $ 94,000 Required Prepare a schedule of relevant sales and costs for Segment A. Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.
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