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University Hospital provided the following income statement for two of its divisions: Diagnostic and ...

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University Hospital provided the following income statement for two of its divisions: Diagnostic and ...

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 division's performance, and he believes that the Diagnostic division is responsible for its dismal result and wants to consider outsourcing diagnostic procedures.

Required:

The controller has determined that the hospital's 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. Omit the heading.

Textbook

Managerial Accounting

Edition: 4^th

Author: Davis

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