Question

Problem 10-25

Jim Coston was reviewing the latest income statement for Trenton Communications. For the second year in a row, the Audio division was showing a negative segment margin, and Jim thought it was time to close the division to increase the company’s operating income. The income statement that he examined follows.

		Video Division		Audio Division		Total
Sales revenue		$5,303,900		$2,863,200		$8,167,100
Less variable expenses		3,663,600		1,649,500		5,313,100
Contribution margin		1,640,300		1,213,700		2,854,000
Less traceable fixed expenses		949,700		1,281,300		2,231,000
Segment margin		$690,600		$(67,600	)	623,000
Common fixed costs						557,000
Net operating income						$66,000

When Jim broke the news, Chloe Sams, manager of the Audio division, was upset. Chloe thought that Jim could be making a snap judgment, and suggested that he look at the division’s detailed operating results. The Audio division is composed of two groups, Streaming and CD. Streaming accounts for 75% of the division’s sales and contribution margin; CD accounts for the other 25%. Streaming’s traceable fixed costs are $450,700; CD, $350,700.

	Your answer is incorrect. Try again.

Prepare a segment margin income statement for the Audio 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.)

Answer 1

Segment margin income statement for the Audio division

	Streaming	CD
Sales	2,147,400	715,800
Variable expenses	- 1,237,125	- 412,375
Conribution margin	910,275	303,425
traceable fixed expenses	- 450,700	- 350,700
Segment margin/loss	$459,575	- $47,275

Audio division sales = $2,863,200

Streaming sales = Audio division sales x 75%

= 2,863,200 x 75%

= $2,147,400

CD sales = Audio division sales x 25%

= 2,863,200 x 25%

= $715,800

Audio division variable expenses = $1,649,500

Streaming variable expenses = Audio division variable expenses x 75%

= 1,649,500 x 75%

= $1,237,125

CD variable expenses = Audio division variable expenses x 25%

= 1,649,500 x 25%

= $412,375