Question
University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient. Diagnostic Outpatient Total Revenue $500,000 $400,000 $900,000 Variable expenses Product
University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient.
| Diagnostic | Outpatient | Total |
Revenue | $500,000 | $400,000 | $900,000 |
Variable expenses |
|
|
|
Product | 220,000 | 140,000 | 360,000 |
Selling and administrative | 150,000 | 80,000 | 230,000 |
Contribution margin | 130,000 | 180,000 | 310,000 |
Less fixed costs | 180,000 | 125,000 | 305,000 |
Operating income | ($50,000) | $ 55,000 | $ 5,000 |
The CEO of the hospital is not pleased with the divisions performance, and he believes that the Diagnostic division is responsible for its dismal result and wants to consider outsourcing diagnostic procedures.
Show Your Work!!
The controller has determined that the hospitals headquarters allocated $98,000 and $32,000 in common administrative fixed costs, respectively, to Diagnostic and Outpatient divisions. Prepare a segment margin income statement that will provide the CEO with a better basis for evaluating the two divisions performance.
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