Problem 10-25 Trent Weaver was reviewing the latest income statement for Taryn E

Question

Problem 10-25 Trent Weaver was reviewing the latest income statement for Taryn Enterprises. For the second year in a row, the Collectibles division was showing a negative segment margin, and Trent thought it was time to close the division to increase the company's operating income. The income statement that he examined follows. Promotions Collectibles Total Division $5,318,800 $2,860,600 $8,179,400 3,658,700 1,647,400 5,306,100 1,660,100 1,213,200 2,873,300 944,0001.280,200 2,.224.200 $716,100 $(67,000) 649,100 Division Revenue Less variable expenses Contribution margin Less traceable fixed expenses Segment margin Common fixed costs Net operating income 585,000 When Trent broke the news, Taylor Tatum, manager of the Collectibles division, was upset. Taylor thought that Trent could be making a snap judgment, and suggested that he look at the division's detailed operating results. The Collectibles division is composed of two groups, Sports Memorabilia and Coins and stamps. Sports Memorabilia accounts for 60% of the division's sales and contribution margin: Coins and Stamps accounts for the other 40%. Sports Memorabilia's traceable fixed costs are $810,100; Coins and Stamps, $247,000 Prepare a segment margin income statement for the Collectibles division that shows the segment margin of each group. (If the amount is negative then enter with a negative sign preceding the number e.g. -5,125 or parenthesis. e.g. (5,125) and Round answers to 0 decimal places, e.g. 5,125.) Sports Memorabilia Coins and Stamps Total Collectibles Division Revenue Less Variable expenses Contribution margin

Explanation / Answer

Answers

Sports Memorabilia

Coins & Stamps

Total Collectibles Divisions

Sales Revenue

$             17,16,360.00   [60% of total]

$                          11,44,240.00   [40% of total]

$               28,60,600.00

Less: Variable Cost

$               9,88,440.00 [60% of total]

$                            6,58,960.00 [40% of total]

$               16,47,400.00

Contribution margin

$               7,27,920.00 [60% of total]

$                            4,85,280.00   [40% of total]

$               12,13,200.00

Traceable fixed expenses

$               8,10,100.00

$                            2,47,000.00

$               10,57,100.00

Segment margin

$                (82,180.00)

$                            2,38,280.00

$                 1,56,100.00

Common Fixed Expenses

$                 2,23,100.00   [1280200 – 1057100]

Operating Income

$                  (67,000.00)

Trend Weaver SHOULD CLOSE ‘’Sports Memorabilia” as it is having Negative Segment Margin of $82,180.

Sports Memorabilia

Coins & Stamps

Total Collectibles Divisions

Sales Revenue

$             17,16,360.00   [60% of total]

$                          11,44,240.00   [40% of total]

$               28,60,600.00

Less: Variable Cost

$               9,88,440.00 [60% of total]

$                            6,58,960.00 [40% of total]

$               16,47,400.00

Contribution margin

$               7,27,920.00 [60% of total]

$                            4,85,280.00   [40% of total]

$               12,13,200.00

Traceable fixed expenses

$               8,10,100.00

$                            2,47,000.00

$               10,57,100.00

Segment margin

$                (82,180.00)

$                            2,38,280.00

$                 1,56,100.00

Common Fixed Expenses

$                 2,23,100.00   [1280200 – 1057100]

Operating Income

$                  (67,000.00)

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