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.

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 $450,000; CD, $350,000.
Required
a. Prepare a segment margin income statement for the Audio division that shows the segment margin of each group.
b. Should Jim Coston close the Audio Division? Why or why not?

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Video Division Audio Division Total $5,300,000 3,650,000 Sales revenue Less variable expenses Contribution margin Less traceable fixed expenses Segment margin Common fixed costs Net operating income $2,860,000 1.645,000 1,215,000 1.275,000 1 $8,160,000 5,295,000 2,865,000 943,000 707,000 647,000 555,000