Chamberline Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.
CHAMBERLINE COMPANY
Income Statements for the Year 2011 |
| Segment |
A |
B |
C |
| Sales |
$ |
169,000 |
|
$ |
237,000 |
|
$ |
250,994 |
|
| Cost of goods sold |
|
(126,000 |
) |
|
(91,000 |
) |
|
(77,000 |
) |
| Sales commissions |
|
(17,000 |
) |
|
(25,000 |
) |
|
(30,000 |
) |
|
|
|
|
|
|
|
|
|
|
| Contribution margin |
|
26,000 |
|
|
121,000 |
|
|
143,994 |
|
| General fixed oper. exp. (allocation of president's salary) |
|
(43,000 |
) |
|
(37,000 |
) |
|
(44,000 |
) |
| Advertising expense (specific to individual divisions) |
|
(7,000 |
) |
|
(12,000 |
) |
|
0 |
|
|
|
|
|
|
|
|
|
|
|
| Net income |
$ |
(24,000 |
) |
$ |
72,000 |
|
$ |
99,994 |
|
|
|
|
|
|
|
|
|
|
|
|
| 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. (Amounts to be deducted should be indicated by a minus sign. Omit the "$" sign in your response.)
|
CHAMBERLINE COMPANY
Comparative Income Statements for the Year 2011 |
| Decision |
Keep Seg. A |
Eliminate Seg. A |
| Revenue |
$ |
$ |
| Cost of goods sold |
|
|
| Sales commissions |
|
|
| |
|
|
| Contribution margin |
|
|
| Gen. fixed operating expenses |
|
|
| Advertising expense |
|
|
|
|
|
| Net Income |
$ |
$ |
|
|
|
|