Gillaspie Brothers Outfitters sells equipment to outdoors enthusiasts. Sam Gillaspie, the company's president, just received the following income statement reporting the results of the past year.

Sam is concerned that two of the company's divisions are showing a loss, and he wonders if the company should stop selling hunting and fishing gear to concentrate solely on camping gear.

a. Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division.
b. Should Sam close the hunting and fishing divisions? Why or why not?
c. Sam 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 hunting and fishing divisions? Why or whynot?

  • CreatedFebruary 21, 2014
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