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Bapelol Bapelol
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A year ago
Jackson Brothers Instruments sells stringed instruments. Trent Jackson, the company's president, just received the following income statement reporting the results of the past year.
BanjosGuitarsFiddlesTotal
Sales revenue$1,250,000 $3,600,000$2,380,000 $7,230,000
Variable cost of goods sold     850,000  2,340,000  1,904,000  5,094,000
Fixed cost of goods sold    115,000    188,000    166,000    469,000
Gross profit     285,000  1,072,000     310,000  1,667,000
Variable operating expenses     170,000     675,000     238,000  1,083,000
Fixed operating expenses       85,000       80,000       83,000     248,000
Common fixed costs     40,000    110,000     77,000   227,000
Operating income$  (10,000)$   207,000($   88,000)$  109,000

Trent is concerned that two of the company's divisions are showing a loss, and he wonders if the company should stop selling Banjos and Fiddles to concentrate solely on guitars.

Required:

a.Prepare a segment margin income statement. Omit the heading. Fixed cost of goods
sold and fixed operating expenses can be traced to each division.
b.Should Trent close the banjos and fiddles divisions? Why or why not?
c.Trent wants to change the allocation method used to allocate common fixed costs to
the divisions. His plan is to allocate these costs based on sales revenue. Will this new allocation method change your decision on whether to close the guitars and fiddles divisions? Why or why not?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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ryan_navarro5ryan_navarro5
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