Kimball Equipment sells equipment to sports enthusiasts. Doug Kimball, the company's president, just received the following income statement reporting the results of the past year.

Doug is concerned that two of the company's divisions are showing a loss, and he wonders if the company should stop selling baseball and basketball gear to concentrate solely on soccer gear.
Required
a. Prepare a segment margin income statement. Fixed cost of goods sold and fixed operating expenses can be traced to each division.
b. Should Doug close the baseball and basketball divisions? Why or why not?
c. Doug 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 baseball and basketball divisions? Why or why not?

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Baseball Soccer Basketball Total Sales revenue Variable cost of goods sold Fixed cost of goods sold Gross profit Variable operating expenses Fixed operating expenses Common fixed costs $1,450,000 $3,600,000 $1,380,000 $6,430,000 960,000 4,250,000 448,000 950,000 2,340,000 188,000 1,072,000 576,000 84,000 130,000 $ 35,000) 282,000 140,000 360,000 185,000 90,000 120,000 120,000 00,000 1,732,000 971,000 279,000 330,000 95,000) 152,000 210,000 105,000 80,000 Operating income