Zachary Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.

ZACHARY COMPANY

Income Statements for the Year 2018

Segment

A

B

C

Sales

$

168,000

$

246,000

$

254,000

Cost of goods sold

(122,000

)

(74,000

)

(85,000

)

Sales commissions

(16,000

)

(25,000

)

(30,000

)

Contribution margin

30,000

147,000

139,000

General fixed operating expenses (allocation of presidents salary)

(40,000

)

(39,000

)

(35,000

)

Advertising expense (specific to individual divisions)

(4,000

)

(14,000

)

0

Net income

$

(14,000

)

$

94,000

$

104,000

a)Prepare a schedule of relevant sales and costs for Segment A.

Relevant Rev. and Cost items for Segment A
Sales
Advertising expense
Cost of goods sold
Sales commissions
Effect on income

b)

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.

ZACHARY COMPANY
Comparative Income Statements for the Year 2018
Decision	Keep Seg. A	Eliminate Seg. A
Sales
Cost of goods sold
Sales commissions
Contribution margin
General fixed operating expenses
Advertising expense
Net Income