Question

18 Exercise 6-14A (Algo) Segment elimination decision LO 6-4 Stuart Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. .34 points STUART COMPANY Income Statements for Year 2 eBook Segment Sales A Ask $168,000 (121,000) (18,000) $244,000 (89,000) (24,000) $250,000 (87,000) (30,000) Cost of goods sold Print Sales commissions References Contribution margin General fixed operating expenses (allocation of president's salary) Advertising expense (specific to individual divisions) 29,000 131,000 133,000 (41,000) (41,000) (41,000) (5,000) (17,000) $ 73,000 (17,000) Net income (loss) 92,000 Required a. Prepare a schedule of relevant sales and costs for Seament A

Answer 1

Solution: Part a: Relevant Rev. And cost items for segment A sales 168000 Cost of goods sold -121000 sales commis sion Advertising expense -18000 -5000 Effect on income 24000 Part b: STUART COMANY Comparative income statement for Year 2 Keep Seg. A Eliminate Seg. A sales 658000 490000 Cost of goods sold sales commission contribution margin General Fixed operating expenses Advertising expense -297000 -17 6000 -288000 -270000 73000 44000 -123000 -123000 -22000 -17000 Effect on income -72000 96000 Total if Seg A kept |Total if Seg A eliminated e-d-a working for Part b R d-a+b+c C sales cost of goods sold sales commission contribution margin 240000 250000 168000 658000 490000 -89000 -87000 -121000 -297000 -176000 -18000 -240000 -30000 -288000 -270000 -89000 133000 29000 73000 44000 -41000 -41000 General Fixed operating expenses Advertising expense Effect on income -41000 123000 -123000* -5000 -17000 -22000 -17000 -147000 -72000 -17000 92000 96000 *will remain unaffected irrespective of seg A Kept or eliminated.