Problem 10-25 Trent Weaver was reviewing the latest income statement for Taryn E
ID: 2535568 • Letter: P
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 Division Division Total Revenue Less variable expenses Contribution margin Less traceable fixed expenses Segment margin Common fixed costs Net operating income $5,312,300 $2,860,000 $8,172,300 3,664,900 1,648,100 5,313,000 1,647,400 1,211,900 2,859,300 2,226,300 $701,700 $(68,700) 633,000 596,000 $37,000 945,7001,280,600 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 $810,800; Coins and Stamps, $246,800Explanation / Answer
Answers
Sports Memorabilia
Coins & Stamps
Total Collectibles Divisions
Sales Revenue
$ 17,16,000.00
$ 11,44,000.00
$ 28,60,000.00
Less: Variable Cost
$ 9,88,860.00
$ 6,59,240.00
$ 16,48,100.00
Contribution margin
$ 7,27,140.00
$ 4,84,760.00
$ 12,11,900.00
Traceable fixed expenses
$ 8,10,800.00
$ 2,46,800.00
$ 10,57,600.00
Segment margin
$ (83,660.00)
$ 2,37,960.00
$ 1,54,300.00
Common Fixed Expenses
$ 2,23,000.00
Operating Income
$ (68,700.00)
Sport Memoribilia Should be considered for Closing as it is earning NEGATIVE Segment Margin.
Sports Memorabilia
Coins & Stamps
Total Collectibles Divisions
Sales Revenue
$ 17,16,000.00
$ 11,44,000.00
$ 28,60,000.00
Less: Variable Cost
$ 9,88,860.00
$ 6,59,240.00
$ 16,48,100.00
Contribution margin
$ 7,27,140.00
$ 4,84,760.00
$ 12,11,900.00
Traceable fixed expenses
$ 8,10,800.00
$ 2,46,800.00
$ 10,57,600.00
Segment margin
$ (83,660.00)
$ 2,37,960.00
$ 1,54,300.00
Common Fixed Expenses
$ 2,23,000.00
Operating Income
$ (68,700.00)
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