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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.

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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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