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Oliver's Cat Depot has three operating segments: Food, Toys, and Furniture. The current year's income statement showing the segment operating results are as follows: Food
Oliver's Cat Depot has three operating segments: Food, Toys, and Furniture. The current year's income statement showing the segment operating results are as follows: Food Toys $3,200,000 $1,300,000 Total Furniture $4,500,000 $9,000,000 Sales Cost of goods sold 2.650.000 760.000 3.100,000 6,510.000 550,000 450,000 540,000 300,000 1,400,000 660,000 2,490,000 1,410,000 Gross profit Direct expenses Allocated expenses Net income (loss) 150.000 75.000 225,000 450.000 ($50,000) $165,000 $515,000 $630,000 After reviewing the current year's results, the CFO is considering dropping the Food segment as it appears to be costing the company money. After further analysis, if the Food segment is dropped sales are not expected to change for the other segments and the allocated expenses will be reallocated to the Toys and Furniture segments. Required: a. As the company's cost accountant, prepare an analysis to determine whether or not to drop the Food segment. (You need to show your work.) b. In addition to the analysis you need to explain to the CFO why you believe the Food segment should be kept or dropped. (Minimum 2-3 sentences)
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