Jackson Brothers Instruments sells stringed instruments. Trent Jackson, the companys president, just received the following income statement reporting the results of the past year.

	Fiddles	Total	Banjos	Guitars
Sales revenue	$2,380,000	$7,230,000	$1,250,000	$3,600,000
Variable cost of goods sold	$1,904,000	$5,094,000	$850,000	$2,340,000
Fixed cost of goods sold	$166,000	$469,000	$115,000	$188,000
Gross profit	$310,000	$1,667,000	$285,000	$1,072,000
Variable operating expenses	$238,000	$1,083,000	$170,000	$675,000
Fixed operating expenses	$83,000	$248,000	$85,000	$80,000
Common fixed costs	$77,000	$227,000	$40,000	$110,000
Operating income	($88,000)	$109,000	($10,000)	$207,000

Trent is concerned that two of the companys divisions are showing a loss, and he wonders if the company should stop selling Banjos and Fiddles to concentrate solely on guitars.

Please:

a. Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division.

b. Should Trent close the banjos and fiddles divisions? Why or why not?

c. Trent 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 guitars and fiddles divisions? Why or why not?