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

Required:

a. Explain the effect on profitability if Segment A is eliminated.

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.

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Segment Sales Cost of Goods Sold Sales Commissions Contribution Margin QUELL COMPANY Income Statements for the Year 2009 General Fixed Oper. Exp. (allocation of president's salary) Advertising Expense (specific to individual divisions) Net Income A B C $196,000 (143,000) $260,000 $345,000 (98,000) (190,000) (20,000) (38,000) (22,000) 33,000 124,000 133,000 (44,000) (52,000) (3,000) (10,000) (44,000) 0 $ (14,000) $ 62,000 $ 89,000